Evergrande

[ajacobson]

China Evergrande Makes Overdue Interest Payment on Dollar Bonds, State Media Says

China Evergrande is one of the country’s biggest developers, and its most indebted.
PHOTO: ALY SONG/REUTERS
By and
Updated Oct. 21, 2021 10:55 pm ET



China Evergrande Group EGRNF -8.05% made an overdue interest payment to international bondholders, the state-owned Securities Times reported Friday, an unexpected move that allows the property company to stave off a default.

The Chinese real-estate developer on Thursday sent $83.5 million to the trustee for the dollar bonds, and that financial institution will in turn pay bondholders, the Securities Times reported. The financial paper is run by the Communist Party’s flagship People’s Daily newspaper.

Evergrande was nearing the end of a 30-day grace period before bondholders could send a notice of default to the company after it failed to make the interest payment on about $2.03 billion of dollar bonds on Sept. 23.

A default on those bonds would likely have spiraled into the biggest corporate default in Asia, by enabling creditors to declare defaults on some of Evergrande’s other debts. The company is one of China’s biggest developers, and its most indebted. It had the equivalent of more than $300 billion in total liabilities, including some $89 billion in interest-bearing debt, as of the end of June.



Many international bondholders had expected Evergrande to fail to make its dollar bond payments before the end of the grace period. The company has also skipped other coupon payments in the past few weeks, and has outstanding dollar debt with a total face value of about $20 billion. Advisers to international bondholders said this month they had made little progress in their efforts to engage with Evergrande.

Still DistressedEvergrande bond price*, cents on the dollarSource: TradewebNote: *Shows price for 8.75% bond due 2025. Oct. 22price as of 10.45am in Hong Kong.
May 2021Oct.102030405060708090
On Wednesday, however, the Shenzhen-headquartered group said in a regulatory filing that it will “use its best effort to negotiate for the renewal or extension of its borrowings or other alternative arrangements with its creditors.”

Evergrande has been trying to raise funds by disposing of assets such as stakes in subsidiaries and a Hong Kong office building that it owns. Last month, it agreed to sell most of its ownership in a Chinese commercial bank to a state-owned enterprise for the equivalent of $1.55 billion. The company had also planned to sell a majority holding in its property-management unit for the equivalent of about $2.6 billion to a smaller rival, but said this week that it had terminated that deal.

Evergrande’s Hong Kong-listed stock has crashed more than 80% this year and its dollar bonds are trading far below face value, indicating skepticism among investors that they will be repaid in full. On Friday, the shares rose 5% in early trading, while its bonds were still at deeply distressed levels that indicate investors still expect the company to ultimately default.

A $4.7 billion, 8.75% Evergrande bond due 2025 was quoted at just 21.75 cents on the dollar Friday morning in Hong Kong, according to Tradeweb, up from 20.5 cents late Thursday.

 

[HeSaidSheSaid]

"shares of other Chinese developers rallied after Vice Premier Liu He became the highest-ranking official to assure that risks in the property market are controllable. Morgan Stanley’s credit and equity strategists have recently turned bullish on the sector, predicting supportive policies in areas like mortgages will limit the fallout" - Yahoo Financial website

"Over the weekend PBOC (People's Bank of China) head Yi Gang stated that Evergrande’s problems are “containable" - Forbes

 

[themickey]

Millennial threatens Evergrande with wind down if he doesn’t get his money back
By Venus Feng August 11, 2022
https://www.smh.com.au/business/ban...esn-t-get-his-money-back-20220810-p5b8up.html

China Evergrande Group has only days to unveil its restructuring plan, but even if it meets the deadline, the embattled property developer faces a new and considerable hurdle: A young, politically connected investor who wants to wind down the company unless he gets his money back fast.

A business tied to Lin Ho Man, who only a few years ago graduated from the University of California Irvine, filed a petition in Hong Kong to wind down Evergrande if it doesn’t repay HK$862.5 million ($158 million). Having the suit withdrawn or dismissed has become a requirement for the developer’s shares to resume trading.

Millennial investor Lin Ho Man wants his money back, or else.Credit:HK01

The lawsuit is the first of its kind for Evergrande, which has more than $US300 billion ($430 billion) of debt and is at the centre of China’s real estate crisis. The company has defaulted on bonds, failed to deliver properties on time and been sued by hundreds in the mainland seeking to gain control of assets. But none of these attempts has gone so far as asking for a winding down of the Shenzhen-based company.

Creditors in Hong Kong may join the suit to demand quicker repayment as Evergrande’s restructuring could take months or even years, according to Gordon Tsang, a partner at law firm Stevenson, Wong & Co. Some of them might also worry that the developer will fail to honour the agreement, he added.

“The winding-up petition can have a significant impact on Evergrande’s coming restructuring plan,” adding pressure and costs for the company, Tsang said.

Evergrande will oppose the lawsuit “vigorously,” and, should it lead to a wind up, any asset disposal will be void unless approved by the court, the developer said in June.

Lin, who didn’t respond to calls for comment, was born in 1992, according to a regulatory filing, but already has an extensive array of investments. He’s chairman and executive director of HKE Holdings, a firm with fintech and medical-equipment businesses in which his holding company acquired a majority stake last year. Originally from China’s southern Guangdong province, he’s also the founder of financial-services firms, including Monmonkey Group Securities and Ever Royal International.

In Hong Kong, Lin is a member of the elite election committee voting for the city’s chief alongside property tycoons Adrian Cheng and Adam Kwok. He serves as a member of a data-privacy body, is a director at a local hospital group and an honorary director at the University of Hong Kong’s foundation. He also holds top roles at several youth associations.

Lin got involved in Evergrande last year, when his company Top Shine Global and another firm he’s a guarantor of invested in its online car-sale platform, FCB Group.

Top Shine invested HK$750 million in FCB in March 2021 with other firms including Citic Capital Holdings and a vehicle owned by the billionaire Cheng family of Chow Tai Fook Jewellery Group. The share sale raised HK$16.4 billion, with the expectation that the company would complete an initial public offering within the next year.

The lawsuit is the first of its kind for Evergrande, the fallen property giant at the centre of China’s real estate crisis.Credit:Getty

The terms also stipulated that backers could request a repurchase of their stake with 15 per cent interest should the IPO not go through in the given timeline. In a June 2021 amendment, Evergrande founder Hui Ka Yan personally agreed to fulfil that obligation for 10 of the investors — although Top Shine wasn’t among them.

A preliminary hearing is scheduled for August 4 in Hong Kong, followed by another one at the end of the month unless Top Shine withdraws the case.

The requirement to have Top Shine’s lawsuit withdrawn or dismissed is just one of Evergrande’s woes. For shares to resume trading in Hong Kong — they’ve been halted since March — the company also needs to publish all its outstanding financial results and resolve a 13.4 billion yuan ($2.85 billion) pledge at its property-services unit that last week led to the forced resignation of Chief Executive Officer Xia Haijun and Chief Financial Officer Pan Darong.

The builder has been struggling to sell assets to raise cash, and Chinese authorities have urged Hui to use his own money to alleviate the crisis. His net worth has dropped almost $US36 billion from a high in 2017 and stood at $US6.1 billion when the shares were suspended, according to the Bloomberg Billionaires Index.

While Evergrande’s debt restructuring plan is expected by the end of the month, some of Hui’s wealthy backers have already headed for the exits. Chinese Estates Holdings, controlled by Hui’s poker pal Joseph Lau and his wife Chan Hoi Wan, offloaded almost all of its stake in Evergrande. China Strategic Holdings, where the Cheng family is a major shareholder, sold stock in the electric-car unit in September after being a backer of the group since 2015.

The Top Shine vs Evergrande case number is HCCW 220 / 2022.

Bloomberg

 

[themickey]

The Australian Reserve Bank’s growing China anxiety

Karen Maley Columnist Aug 15, 2022
https://www.afr.com/companies/finan...-bank-s-growing-china-anxiety-20220808-p5b846

As the Reserve Bank hikes interest rates to slow economic activity and take some heat out of inflationary pressures, it’s acutely aware that the worsening slump in the Chinese property market could upend its plans by delivering a severe growth shock.

The Reserve Bank is expecting Australia’s economic growth will drop from 3.25 per cent this year, to 1.75 per cent in both 2023 and 2024, as rising interest rates and higher consumer prices, and falling house prices weigh on consumer spending.

But, it expects the Australian economy will be partly cushioned because “the elevated terms of trade [the ratio between export prices and import prices] will boost national income substantially”.

The problem is that the Reserve Bank’s assumptions on export prices – particularly for iron ore – could prove overly optimistic if China’s rapidly deflating property bubble further darkens the outlook for growth in the world’s second-largest economy.

Already, home prices are dropping in many Chinese cities, and some analysts predict that property sales in the country will plunge by about 30 per cent this year, as a growing number of Chinese home buyers suspend their mortgage payments on uncompleted apartment projects.

The spreading mortgage boycott is further intensifying the financial squeeze faced by embattled property developers, which will likely trigger even more savage declines in Chinese construction activity.

This is a problem for Australia, because China’s property sector accounts for about 30 per cent of the country’s demand for steel, for which iron ore is a key ingredient.

In its latest Statement on Monetary Policy, the Reserve Bank looked closely at the Chinese real estate sector, which it points out “has been a significant drag on the Chinese economy over the past year”.

“Activity has been constrained by restrictions on developer financing compounded by restrictions on movement to deal with outbreaks of COVID-19.”

Although policy measures – such as lower mortgage rates and reduced deposit ratios for new property purchases – have helped to support new home sales in the largest cities, the Statement says that “national housing sales have been slow to pick up because demand is still very weak in other cities”.

It adds that “real estate investment has declined by about 15 per cent from its peak in late 2020 and is likely to fall further”.

“Expectations of further weakness in construction contributed to recent falls in Chinese steel and iron ore prices.”

The Statement says that “subdued property market activity has exacerbated financial pressure on property developers, particularly those that were already highly leveraged and experiencing significant stress.

“The deterioration in funding conditions has led some developers to suspend construction; in turn, some home buyers are withholding related mortgage payments, which has affected a number of residential projects across China.”

Expressed more bluntly, this suggests problems in the Chinese property market are now snowballing, as cash-strapped developers suspend work on apartment projects, prompting even more homeowners to suspend their mortgage payments.

Reports suggest that China is planning a real estate fund to help property developers resolve a crippling debt crisis, aiming for a war chest of between 300 billion yuan and 400 billion yuan (between $62.5 billion and $83.3 billion).

But as the latest report by BCA Research points out, the size of the proposed bailout fund falls far short of the amount needed to allow embattled Chinese property developers to complete unfinished, but pre-sold, apartment projects.

Indeed, the size of the proposed fund only represents about 3 to 4 per cent of the advance payments that property developers received from pre-sold housing last year, and between 1.5 to 2 per cent of developers’ total financing.

What’s more, the BCA report also points out that property developers won’t receive any cash when they finally complete their pre-sold apartments because they’ve already been paid in advance.

“Hence, without liquidating their other assets, home builders cannot repay the bailout financing.”

Fragmented industry
But BCA also highlights the problems that Chinese policy-makers confront in trying to work out a rescue plan for the collapsing property sector.

“The property industry in China is extremely fragmented. This makes bailouts difficult to organise and execute”, it says.

“There are officially about 100,000 property developers in China. The overwhelming majority of them are not state-owned companies.”

For example, in 2020, the country’s two largest property developers, Evergrande (the real estate giant that defaulted on its debt last December) and Country Garden, had only 3.8 per cent and 3.3 per cent of market share respectively.

All the same, the BCA report warns that property developers are at risk of entering a “death spiral” if they fail to complete and deliver pre-sold housing units.

“In recent years, 90 per cent of housing units have been pre-sold, that is buyers made advance payments/prepayments, often taking out mortgages.

“Witnessing the inability of developers to deliver on presold units, a rising number of people may decide to wait to buy.”

That would cause the most important source of funding for property developers – advance payments on pre-sold housing units – to dry up.

“This source has accounted for 50 per cent of real estate developers’ total financing in recent years,” the report says. “In brief, a vicious cycle is possible.”

As funding for property developers dries up, construction activity is likely to continue to plunge.

And it will be difficult for property developers to find other sources of funding, given that they “are very leveraged with an assets-to-equity ratio close to nine”.

Debt deflation spiral
Chinese property developers have grown rapidly by borrowing heavily to accumulate real estate assets, on which construction has started, but not been completed.

One possibility is that property developers could raise funds by selling off real estate assets.

The trouble is, as the BCA report notes, “if they all try to sell simultaneously, there will not be enough buyers, and asset prices will plunge, which could lead to a full-blown debt deflation spiral”.

Meanwhile, as the crisis-stricken industry waits for Beijing to officially announce its bailout fund, distressed property developers are increasingly reliant on support from state-owned players to provide the funding that will allow them to finish stalled apartment projects.
The South China Morning Post reported last week that Greenland Holdings, the largest developer in Shanghai, announced that it had received loans totalling 3 billion yuan from Shanghai Land and Shanghai Chengtou, two shareholders backed by the city government.

This came shortly after developer Yango Longking Group said that it had reached a deal to restructure its debts with China Huarong Asset Management, the giant state-owned bad debt manager.

And China Aoyuan Group, another distressed developer based in Guangzhou, the capital of the southern Guangdong province, has disclosed it is in negotiations with creditors about restructuring its debts.