China’s second largest real estate developer, everlarge he warned again on Tuesday (14) that he is under “tremendous pressure” and that there are no guarantees that he will be able to meet his financial obligations in the coming months.
This was the second warning made by the company, which has a debt of over US$300 billion, that it may not honor its commitments if it is unable to attract new investors and sell assets.
In a statement sent today to the Hong Kong Stock Exchange, Evergrande said its monthly sales fell by nearly half between June and August, from 71.6 billion yuan (about US$11 billion) to 38.1 billion yuan ($5.9 billion).
While September is generally a month of high sales for developers in China, Evergrande blamed “negative press reports” for the drop in consumer confidence in the company’s real estate.
With the possibility of default and stoppage of several works, the company’s headquarters in the city of Shenzhen, in southern China, is being the target of a series of protests by investors and property owners, who fear the company’s bankruptcy, one of the most indebted in the world.
Chinese state media reported that some of the protesters met with Evergrande executives on Sunday after the group suspended payments for some of its wealth management products. On social media, homebuyers have expressed concern that construction work on their new homes will not be completed.
Analysts also warned that Evergrande’s default could pose a broader risk to China’s financial system and international bond markets, where the company has borrowed heavily in recent years.
To try to avoid default, the developer announced today that it has hired a restructuring team and appointed advisers to “evaluate the group’s capital structure and explore all viable solutions to alleviate the current liquidity problem”.
Since the beginning of this year, Evergrande shares have plummeted 75%. Today, after the release of the new statement on the sequence of liquidity problems, the group’s shares closed down almost 12% on the Hong Kong Stock Exchange.
The group’s growing credit problems have coincided with a regulatory move in Beijing against major technology groups, the real estate industry and other sectors. Last year, the government implemented a policy to reduce the debt of large developers, identified by China’s banking regulator as the country’s biggest financial risk.
“Now is a critical time for Evergrande,” he said. Chuanyi Zhou, Lucor Analytics credit analyst, to “Nikkei Asia”. “If the arrival of new investors does not progress well and meet the government’s expectations, a default is likely to occur. This will likely be followed by an out-of-court settlement with creditors, which may involve an exchange offer with extended maturities.”
Evergrande blamed “negative press reports” for the drop in consumer confidence in the company’s properties — Photo: Divulgação/Evergrande