China Evergrande shares hit record low as it edges closer to default

With $82.5m repayment due, property developer appears to be heading for restructuring

Shares in the struggling Chinese property developer Evergrande hit a record low on Monday after strong indications that it is on the verge of a potentially disastrous default and could be forced into a full-blown restructuring.

The company has lurched from one crisis to another in recent months as it faced a series of repayments on debts – three times waiting until the last possible moment to stump up the cash needed to stay afloat.

However, a statement from the company over the weekend said there was “no guarantee” that the group could meet its obligations and added that creditors had demanded immediate repayment of a total of $260m (£196m).

Its most pressing problem is how to repay $82.5m due on Monday – a deadline pushed back 30 days when it failed to meet the obligation on the due date in November.

“Since September 2021, the group has been diligently reviewing its capital structure and liquidity condition with the help of its financial and legal advisers, evaluating all available strategic options, and maintaining ongoing dialogue with offshore creditors,” the statement said.

“In light of the current liquidity status of the group, there is no guarantee that the group will have sufficient funds to continue to perform its financial obligations … The company received a demand to perform its obligations under a guarantee in the amount of approximately US$260m. In the event that the group is unable to meet its guarantee obligations or certain other financial obligations, it may lead to creditors demanding acceleration of repayment.”

There were reports that its billionaire founder Xu Jiayin had been summoned by officials to explain the statement, and Guangdong’s provincial government said it was sending a team to Evergrande to “supervise and promote enterprise risk management”.

The latest news sent Evergrande shares down 20% in Hong Kong, to a record low of HK$1.81 (17p).

China’s central bank said on Monday it would cut the amount of cash that banks must hold in reserve, its second such move this year, releasing an estimated 1.2tn yuan (£144bn) in long-term liquidity to bolster slowing economic growth.

The People’s Bank of China said on its website it would cut the reserve requirement ratio for banks by 0.5 percentage points, effective from 15 December.

“This is anything but routine, except in the sense that this how central banks must react to a sudden surge in financial risks,” said Craig Botham, the chief China economist at Pantheon Macroeconomics. Botham added that property market pressures had “again boiled over” and that an Evergrande default was “the base case”.

Evergrande was once China’s top-selling developer but is now grappling with more than $300bn in liabilities, meaning a collapse could ripple through the property sector and beyond.

Analysts have warned that a third of China’s developers could face a similar crisis as the country’s bloated housing market stagnates after a crackdown on reckless borrowing by Xi Jinping’s government in Beijing.

On Monday a smaller developer, Sunshine 100 China Holdings Ltd, defaulted on $179m of debt and interest payments that had been due on Sunday.

The default was down to “liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment and the real estate industry”, the company said in an exchange filing.

Sunshine 100 has repeatedly struggled to meet its debt obligations this year and also defaulted on a bond repayment in August. The company has $385m of outstanding dollar notes, according to data compiled by Bloomberg.

Investors are also concerned about a potential default by Kaisa Group Holdings Ltd, which faces a $400m bond maturity on Tuesday because it failed to secure a debt swap that would have bought it crucial time to pay back some of its bonds. After Evergrande, it owes the most to foreign bondholders, with debts of $12bn.

Contributor

Martin Farrer

The GuardianTramp

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