Global Courant
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Barely a month after Chinese property developer China Evergrande resumed trading on the Hong Kong Stock Exchange, the company’s ongoing restructuring and debt issues have hit a wall. The company was the world’s most valuable real estate company. The market value has fallen by more than 98 percent.
– Great uncertainty
China Evergrande’s management was due to hold an important meeting with creditors this week. This has surprisingly been cancelled. A planned restructuring of more than NOK 320 billion in bond debt to foreign creditors, which was planned to convert them into new debt, has been postponed.
– A major and comprehensive work has been carried out in the design and planning of a restructuring in Evergrande. If the sales forecasts underlying the turnaround prove unachievable, it would be better to review the terms of the agreement before any meetings take place, partner Jonathan Leitch of law firm Hogan Lovells told Bloomberg.
In total, China Evergrande had debts and liabilities of 2.39 billion yuan at the end of the second quarter. The company said on Monday it will review the restructuring plan. As a result, the share price on the Hong Kong Stock Exchange fell by 22 percent. The share price fell by five percent on Tuesday morning.
The article continues below the advertisementIn a stock exchange announcement on Monday, Evergrande confirmed that subsidiary Hengda Real Estate cannot issue new corporate bonds. China’s Finanstilsynet, the China Securities Regulatory Commission (CSRC), is investigating the real estate conglomerate and its subsidiaries.
– Because the company is under investigation, the group of companies cannot meet the criteria for issuing new bonds under the current situation, writes China Evergrande.
In an earlier proposal, creditors were given the option of receiving new bonds, with a term of ten to twelve years, or combining this with acquiring shares in companies.
– With the latest developments, it seems that the conversion of debt into equity in Evergrande and its subsidiaries is the only option for debt structuring. Even this solution brings a lot of uncertainty, analysts at UOB Kay Hian write in a report.
Leaders arrested
The renowned business newspaper Caixin writes that an investigation is underway into a number of current and former top managers at China Evergrande. Former CEO Xia Haijun and former CFO Pan Darong are said to have been arrested and are in custody. This has not been confirmed by the company.
The two resigned from management last summer after banks seized deposits of more than NOK 20 billion at subsidiaries. These concerned loans that the subsidiaries had taken out without this appearing in the accounts. Evergrande used this as collateral for loans in the parent company.
There are a number of other investigations into the company in China. Employees of subsidiary Evergrande Wealth Management were arrested last week in the major city of Shenzhen.
Decisive sales weeks
When China Evergrande ran into trouble just over two years ago, analysts in China thought there were at least 65 million vacant homes. Officially, according to the National Bureau of Statistics (NBS), 648 million square meters of living space are vacant.
The article continues below the advertisement– How many vacant homes are there now? Each expert gives different figures, but there are those who think this could be enough for three billion people. That estimate may be exaggerated, but China’s population of 1.4 billion is unlikely to fill it, says former Chinese Bureau of Statistics deputy director He Keng in a video of a seminar in Dongguan published by China News Service. verified by Reuters.
It has been more than ten years since the first ‘ghost towns’ emerged. Ordos, on the border with Mongolia, was to become a city of millions – and was built accordingly. Several tens of thousands of people now live there.
The coming weeks will be crucial for the Chinese real estate market. Parts of China are taking the weekend off and the upcoming fall week is traditionally the biggest week for property sales. The real estate market has historically been responsible for between 25 and 30 percent of value creation in China.
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– Real estate sales have been very poor this year. It is therefore crucial for project developers that transactions pick up again in the next two months. If sales in October are not good enough, local authorities will implement more stimulus measures, Zhang Hongwei of Jingjian Consulting told Bloomberg.
As of September 1, the Chinese authorities have lowered the equity requirement to 20 percent for first-time buyers in the housing market. The banks offer lower mortgage interest rates. This is an attempt to stimulate activity in the real estate sector.
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Fatal week for the real estate companies: – The Chinese population cannot fill all the empty houses
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