Home » Business » This time, Evergrande is not escaping from the ax. Here comes the giant’s controlled demolition

This time, Evergrande is not escaping from the ax. Here comes the giant’s controlled demolition


This time, Evergrande is not escaping from the ax.  Here comes the giant's controlled demolition
fot. Aly Song / / Reuters

Up to four times a piece. It seems that the Evergrande Group has finally failed to settle its obligations to its bondholders within the extended period. Three months ago, fears of such a scenario shook global markets, but since then investors have gotten used to the thought that the (former) second largest developer in China is doomed to insolvency and restructuring.

The 30-day grace period during which the Evergrande Group was obligated to pay investors $ 82.5 million passed on Monday. interest on bonds issued by its subsidiary Scenery Journey Ltd. Media reports, citing information from bondholders, that the money did not reach creditors. The group has not issued a communication on this matter. In recent months, the developer has paid its liabilities to holders of its dollar bonds three times just before the end of the extended repayment period. At that time, he also did not inform publicly about the fact, about which the media reported, or about the reasons for the delay.

Bondholders can now issue a notice of default to the company, triggering a developer’s default. This could trigger an avalanche of other claims through so-called cross-default – when such a clause is included in the securities, failure to meet one obligation gives the holders of other bonds the right to demand early repayment of receivables. Evergrande Group has issued USD 19 billion worth of dollar bonds on the offshore market. It would therefore be the largest insolvency in the history of Chinese companies.

In recent days, clear signals have come from beyond the Wall that this time the world’s most indebted developer will not pay investors a coupon. On Friday, the company announcedthat it “may not be able to continue to service its liabilities” and “plans to actively work with foreign creditors to develop a restructuring plan.” On Monday it announced that it has formed a special committee that “will play a vital role in mitigating and eliminating future risks to the group.” It includes, along with representatives of Evergrande, headed by main shareholder of Hui Ka Yanem, representatives of companies controlled by the authorities entered. Bloomberg learned that the company intends to restructure all its foreign public (bonds) and private (loans) liabilities. Their scale is difficult to estimate because some debts are hidden and the company remains entangled in a network of dependencies. This is evidenced by the Friday’s announcement, in which the developer announced that he had received a call to fulfill his obligations under the guarantee in the amount of approximately $ 260 million.

The Evergrande Group is now facing a restructuring process under which its the assets will be taken over by other entities, incl. controlled by the authorities. Foreign investors will probably receive only a part of the funds borrowed to the company. For Beijing, it is essential that the giant’s “decomposition” is under control – did not trigger a wave of bankruptcy of contractors to whom the group owes money for the services or materials provided, and a wave of discontent over a million Chinese who bought a “hole in the ground” from a developer and are waiting for the promised apartment. The impact on the labor market will also be important – Evergrande employs over 160,000 people. people and claims that it indirectly creates 3.8 million jobs – but in this case the future of the company itself is not crucial, but the future of the entire construction sector.

Three months ago, global markets were shaken by fears of the consequences of the collapse of the second largest developer in China and the most indebted of them. Now, when the scenario is realized, the markets are calm, despite the fact that the giant has two trillion yuan of balance sheet liabilities and probably another trillion yuan of off-balance sheet liabilities, linked – according to unofficial information – with over two hundred institutions. Investors believed Beijing’s assurances that Evergrande Group will not turn out to be “Chinese Lehman Brothers”. The party’s control of the financial system beyond the Wall and the conviction in Zhongnanhai that it is necessary to maintain stability in the Middle Kingdom (especially on the eve of the “elections” in 2022) mean that the risk of a wide spill of Evergrande’s troubles to the rest of the economy remains low, which has been regularly emphasized by the Chinese authorities.

The problem is not so much the impact of the “decomposition” of the giant on the real estate and financial sectors and the entire economy of China and even the world, but the bad situation of the Chinese housing has been targeted by Beijing after years of rampant expansion fueled by debt and real estate speculation. Evergrande Group is only a symbol of a much wider problem, the solution of which will be much more difficult than the controlled demolition of one, even a great developer.

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