Evergrande is currently evading a default: The over-indebted Chinese promoter, whose bankruptcy could rock the country’s economy, paid off just ahead of a deadline, state media said on Friday.
The real estate conglomerate, one of the largest in China, is pulling in an estimated slate of 260 billion euros. Its financials are scrutinized with concern as its potential collapse could slow the Asian giant’s growth.
With his football club Guangzhou FC, Evergrande seemed an indestructible venture a few years ago, until being coached by two-time Asian champion and most recently Italian world champion Fabio Cannavaro.
But the group based in Shenzhen (southern China) is now grappling with delayed apartment deliveries due to heavy debt, interest payments for honors and lack of liquidity to complete the work.
Evergrande was due on September 23 for interest payments on the dollar bond. The payment was not made, but the company still had a one-month grace period – which lasted until Saturday.
To analysts’ surprise, the promoter eventually transferred $83.5 million (71.8 million euros) to honor this interest payment, the Securities Times newspaper said, citing “sources”.
Fears of Evergrande going bankrupt had created panic in international markets in September. The group’s action fell on Thursday to resume quotations after a two-week halt in Hong Kong.
– The action goes back –
But in the wake of the Security Times announcement, prices started to rise again on Friday, up nearly 5% at the start of the session.
In addition to real estate, Evergrande, sure of its financial strength, has invested in tourism, digital technology, insurance, health and even electric cars in recent years.
But worried about debt swelling in the real estate sector, Chinese regulators last year imposed “three red lines,” prudent ratios, on key developers, aimed at reducing their recourse to borrowing.
This decision marked the beginning of financial concerns for Evergrande. It has since struggled to continue its activities and is looking to offload properties for bail.
The group acknowledged this week that it has not made significant progress in this regard following the failure to sell 50.1% of the capital of one of its subsidiaries. This sale could have brought in 2.2 billion euros.
The Chinese central bank last week judged the risks posed by Evergrande’s debt to the country’s financial system “manageable”.
But anxiety is felt among individuals.
Dozens of injured owners, who did not receive delivery of their apartments, as well as unpaid suppliers, demonstrated in front of the group’s headquarters in September.
– “Miracle” –
This fear of social unrest may prompt authorities to intervene to bail out or restructure the indebted group. Even though no clear indication has been given from Beijing so far.
Evergrande “might be able to pay this interest, and even pay more. They’ll have interest payments every two weeks or more” and they don’t “a huge amount”. are, they say. Chen Long, AFP analyst at Plenum Firm in Beijing.
“But at some point, beyond interest, there will be principal that will be payable, and that amount will be worth several billion dollars,” notes Mr. Chen, with whom Evergrande is playing clock in the meantime. A “miracle” or a Beijing initiative.
The poor health of the group is one of the symptoms of a real estate sector that has been in general seizure.
New housing prices are down for the first time in six years, in the context of distrust of buyers with many developers facing the risk of bankruptcy.
The government said on Wednesday that 70 large and medium-sized cities in China recorded a year-on-year decline in prices in September.
According to estimates by the Bloomberg agency, prices have fallen by an average of about 1 percent.
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