Evergrande sinks deeper into crisis

Chinese real estate 'debt bomb' Evegrande continues to miss payments, amid former leaders being arrested for investigation.

On September 25, Hengda Real Estate Group, the Chinese subsidiary of real estate giant China Evergrande Group, said it was unable to repay 4 billion yuan ($547 million) worth of domestic bonds with interest. In March, Hengda also missed the interest payment deadline on this 2020 bond issue.

At the time, it said it would “actively” negotiate with bondholders to find a solution. Yesterday, Hengda reiterated that commitment.

Evergrande has been in trouble lately. It is now the world's most indebted real estate company and a prime example of China's property crisis.

Logo on the Evergrande Center building in Shanghai. Photo: VCG

Evergrande has been trying to convince creditors to agree to a plan to restructure its foreign debt since defaulting in 2021. The plan, announced in March, included swapping existing debt for new bonds with maturities of 10-12 years.

However, Evergrande said on September 24 that it could not issue new debt because Hengda Real Estate Group was under investigation. Chinese securities regulators last month opened an investigation into Hengda for suspected violations of disclosure rules. Earlier, on September 22, Evergrande announced the cancellation of a meeting with its main creditors, citing the need to reassess the restructuring.

Caixin also reported on September 25 that Xia Haijun - former CEO of Evergrande and Pan Darong - former chief financial officer - were being detained by authorities for investigation.

Evergrande shares fell 21.8% yesterday, to their lowest since September 5. "The hopes of Evergrande's creditors have been dashed," Fern Wang, a senior researcher at KT Capital Group, told Reuters.

Evergrande, like other Chinese real estate companies, fell into crisis since mid-2021. The cause is believed to be Beijing's "three red lines" policy, launched to reduce systemic risk by limiting real estate companies' ability to borrow new loans.

Evergrande has suffered the most, due to its excessive financial leverage to develop projects and diversify its businesses. Its total debt is now around 2,437 billion yuan ($340 billion), equivalent to 2% of China’s GDP.

If Evergrande fails to restructure its debt, it could be forced into liquidation. A Hong Kong court will decide on that on October 30.

However, Fern Wang said this is unlikely. "The Chinese government 's number one priority is to ensure timely delivery of homes. Liquidating Evergrande's assets will have no effect on this goal," he said.

Ha Thu (according to Reuters, Caixin)

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