Six key facts to understand the crisis of Chinese real estate giant Evergrande

hong kong justice This Monday he ordered the liquidation of the debt-ridden real estate giant Chinese EvergrandeThe most visible face of crisis The Asian country owes the sector about $330,000 million (304,257 million euros) in liabilities, which plunged it into a deep crisis more than two years ago.

These are some keys to understanding what is going on with the company, Who became China’s largest real estate developer,

All alarms went off in mid-2021 Evergreen defaulted on your loan extraterritorial (‘Offshore’) at a time when it had liabilities of more than $300,000 million (304,257 million euros), leading to hundreds of litigation and great uncertainty in the region. Possible bankruptcy.

Since the real estate boom in the late 90s, like many other Chinese developers Evergreen It was largely dependent on high levels of leverage (the use of debt to finance operations) and off-plan sales to continue its growth: some analysts estimate that the firm had sold $1.4 million before construction when the crisis began. Homes were sold., equivalent to more than 200,000 million dollars (184,403 million euros).

The causes of the Chinese real estate crisis include the so-called ‘three red lines’, regulations promoted by Beijing In 2020 there were calls to limit access to financing to promoters who had accumulated excessive liabilities, exceeded certain levels of leverage or did not have sufficient liquidity to meet short-term loans.

Due to this many companies in the region had to face this liquidity crisis Which was added to the restrictions implemented in those years to “cool” the high price of housing – which was unaffordable for people many Chinese families– In accordance with the principle established by the President of the country, Xi JinpingWho assured that “homes are for living, “Don’t speculate.”,

There was a slowdown in growth after ‘Zero Covid’The weight of the real estate sector on GDP – around 30%, according to some analysts, adding indirect factors – and the distrust of buyers has translated into a slowdown in the market that worries not only developers but also households, which They view housing as an important investment vehicle.

Given the situation, regulators have responded in recent months with measures to support the sector, guaranteeing delivery of off-plan homes and rolling back many of the above restrictions, but the market is not responding. : Sales, measured by commercial floor area, fell 24.3% in 2022 and 8.5% in 2023, according to official data.

Evergreen Presented a proposal to restructure the debt of about 20,000 million dollars (18,440 million euros). ‘Offshore’ unpaid, but it has postponed votes of its creditors on several occasions, the last of them last September, when it argued that sales were going worse than it expected and announced it would sell off its key subsidiary. cannot continue to issue new loans through China,

According to American newspaper wall street journalThe last round of negotiations with creditors ended in a breakdown, leaving a significant group of bondholders ‘Offshore’ will come to support the unpaid liquidation request, something that has been key in triggering this Monday’s decision, which comes after seven adjournments During negotiations the group sold properties to raise funds.

The past few months have been particularly tumultuous Evergreen:disclosed losses in excess of 80,000 million euros from 2021submitted a request for bankruptcy in usa to protect its assets, and its shares – which were frozen for a year and a half – have already fallen about 99.5% since then. maximum peakAccessed in October 2017.

In late September, its founder and chairman, xu jiyin -who became China’s richest man- was put under a form of house arrest undersuspicion of illegal activities, Authorities also recently arrested the vice president of the group’s electric vehicle subsidiary and several employees of its wealth management subsidiary.

The Hong Kong judge who ordered the liquidation is expected to be appointed immediately judicial administrator to take control of the company’s management and assets, but some analysts have questioned whether this decision will be recognized Mainland ChinaWhere most of the group’s assets are located, because the Hong Kong judicial system is different from the Chinese within the framework of its semi-autonomous statute.

“Recipients will have very limited enforcement powers over onshore assets (located in Mainland China) if they can’t achieve that recognition,” says partner Lance Jiang Ashurst LLPquoted by local newspaper South China Morning Post.

(efe)