A hundred people walk into an office Evergrande Group in the city of Guangzhou, an important avant-garde nucleus in the south of China. Many sit on the ground, holding placards that read “Evergrande is a scamOthers approach the offices of the office and begin pounding on the doors. “We want our houses, you have to resume construction,” they shout.
They are customers who have been hearing news for days that the world’s most indebted real estate giant is on the brink of bankruptcy. They want them to finish building their houses. Or get your money back. The one who invested in 5,000 newly built apartments in Guangzhou that have not restarted construction since May.
The protests against Evergrande have spread to other cities in China. Like in Kunming, in the southwest of the country, where many pissed off investors have taken to the streets to demonstrate. They have even surrounded government offices. They ask the authorities to intervene and force the real estate company to return the money from the projects paralyzed by the construction companies to which the company owes more than 148 billion dollars.
These demonstrations, a rare bird in today’s China and one that does not appeal to Beijing, always in fear of social unrest, occur at the same time that Evergrande’s suppliers and contractors go to court to freeze their assets in the company.
The financial health of the famous company that hit the pitch during China’s housing boom earlier this century is worse than ever. Evergrande itself admitted last week that it could default on its substantial debts, which reach $ 305 billion in total liabilities. This could be a direct hit to China’s banking system.
The company needs to sell its assets quickly and achieve liquidity that it lacks after suspending many of its projects. It will not be easy to get ahead despite the lifeline that the China Financial Stability and Development Committee, the country’s main financial regulator, gave the company four days ago when approving its proposal for renegotiate payment terms with banks and other creditors. Experts point out that Evergrande may undergo one of the largest debt restructurings in the country’s history.
Its shares in Hong Kong are down one 72% this year. The group net profit has fallen by 28.9% in the first six months of the year, while its turnover was reduced by 16.5% compared to the first half of 2020. Trading in one of its bonds was suspended in Shanghai this Monday after drop 25%. According to ., the total of its bonds abroad have fallen to less than a quarter of their face value.
To these bad data we must add that it has 37 billion on loans maturing within one year. The rating agency Fitch said this week that the breach of the doubt “seems likely.” Moody’s, another rating agency, also noted that Evergrande “has neither money nor time.”
Bad times for the company the billionaire founded in 1996 Xu Jiayin (62 years old, with a fortune of 12.2 billion dollars according to the latest Forbes list), member of the Chinese People’s Political Consultative Conference, the largest political advisory body in the Asian giant. It was Xu’s connections with power that pushed him to obtain licenses to urbanize large territories in the country and take over part of a booming real estate market. Evergrande even expanded into other businesses such as electric cars, bottled water or the purchase of one of the best soccer teams in the Chinese league (Guangzhou FC).
I grew and grew until I was the second real estate developer in China, opening offices in 280 cities with more than 800 projects and directly and indirectly employing almost four million workers. until accumulated a debt that could not pay And increased problems began last year due to Chinese regulators’ crackdown on the country’s big companies, forcing the group to ditch increasingly discounted properties.
“Evergrande has the distinction of being the world’s most indebted real estate developer and has been on life support for months. A steady rate of bad news in recent weeks has accelerated what many experts warn is inevitable: failure,” analyzes a article in The Economic Times.
“Chinese regulators are cracking down on the reckless borrowing habits of property developers. This has forced Evergrande to start selling off part of its expanding business empire. China’s real estate market is slowing and there is less demand for apartments. new “, they point out from the economic newspaper.
From Bloomberg they point to three potential scenarios for the future: a liquidation that would wreak havoc on the banking sector and on China’s property; the restructuring of its debt with the help of the Chinese Government and thus the bondholders will recover a part of their funds; a total or partial acquisition by a state company.
“The collapse of Evergrande would be the biggest test the Chinese financial system has faced in years. The top priority for policymakers will be households that have provided deposits for properties that have yet to be completed. The company’s other creditors They will suffer. Although the markets do not seem concerned about the potential for financial contagion at the moment. That will change in the event of a large-scale default, although the People’s Bank of China will intervene with liquidity support if the fears intensify, “explains Mark Williams, chief economist in Asia at the consulting firm Capital Economics.
“The most likely ending is now a managed restructuring in which other developers take over Evergrande’s incomplete projects in exchange for a portion of their land bank. Pre-completion deposits from homes now account for the majority of the liabilities of the company, “Williams continues.
Analysts share that a possible bankruptcy of Evergrande will cause investors and buyers across the real estate market to panic. Controversial billionaire George Soros even warned in an interview with the Financial Times that a debt default could cause China’s economy to collapse.
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