Dow Today – Evergrande, Chinese property giant, warns again that it could default on its enormous debts
Should that happen, the effects would be felt across China’s banking system and the wider economy. The group has already suspended work on some projects as it tries to conserve cash, a move that’s poised to hit China’s property sector.
Evergrande disclosed on Tuesday that it had made “no material progress” in its search for investors to buy part of its stakes in its electric vehicle and property services businesses.
“If the group is unable to meet its guarantee obligation or to repay any debt when due or agree with the relevant creditors on extensions of such debts or alternative agreements, it may lead to cross-default,” it said.
“The company has indeed encountered unprecedented difficulties at present, but it is determined to … do everything possible to restore operations as usual, and protect the legitimate rights and interests of customers,” it said in the Monday statement.
But on Tuesday, Evergrande acknowledged its difficulty in finding buyers for its assets, saying that “it is uncertain as to whether the group will be able to consummate any such sale.”
Evergrande shares plunged almost 12% Tuesday to 2.97 Hong Kong dollars ($0.38), its lowest level since December 2014. The stock has shed 80% of its value this year.
Evergrande’s problems were underscored this week when protests reportedly broke out at its headquarters in Shenzhen.
Evergrande did not immediately respond to a request for further comment.
Analysts have suggested that the Chinese government would have to intervene to limit the fallout if Evergrande were to default. And authorities are clearly watching closely, while attempting to project calm.
On Wednesday, Fu Linghui, a spokesperson for China’s National Bureau of Statistics, acknowledged the difficulties of “some large real estate companies,” according to state news agency China News Service.
Without naming Evergrande directly, Fu was quoted as saying that China’s real estate market had remained stable this year but the impact of recent events “on the development of the whole industry needs to be observed.”
“Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” Mark Williams, Capital Economics’ chief Asia economist, wrote in a note last week. He predicted that the country’s central bank “would step in with liquidity support” if fears of a major default intensified.
Financial restructuring specialist Houlihan Lokey and Hong Kong-based Admiralty Harbour Capital are now serving as the firm’s advisers.
— Julia Horowitz contributed to this report.