Evergrande and the wider Chinese property developer sector continues to go through financial difficulties. Is Evergrande and the wider sector about to go under?
What’s happening to Evergrande?
This week alone, the Evergrande share price has dropped 19% on the Hong Kong Stock Exchange.
At the end of last week, Evergrande told the market that it had received a demand to “perform its obligations” under a guarantee for an amount of around US$260 million. If Evergrande is unable to meet its guarantee obligations or certain other financial obligations, it “may lead to creditors demanding acceleration of repayment”.
The giant Chinese real estate developer said:
In light of the current liquidity status of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations. The Group is taking a comprehensive view in assessing its overall financial condition, considering the interests of all stakeholders, upholding the principles of fairness and legality, and plans to actively engage with offshore creditors to formulate a viable restructuring plan.
Other developers in peril?
Evergrande isn’t the only Chinese real estate developer that is currently facing financial difficulties.
In October, the Fantasia business missed a US$206 million payment.
Other Chinese real estate businesses are also seemingly in financial strife.
The business Sinic is another that has missed making a payment.
According to reporting by News.com.au on Friday, Kaisa Group Holdings Ltd warned it might not pay off its $571 million bond due next week. The online news site also reported that the developer Sunshine 100 China Holdings has missed a payment of $179 million of debt and interest payments which was due on Sunday.
What is China doing about Evergrande?
Reuters reported that Guangdong province has summoned the chair of Evergrande, Hui Ka Yan. Guangdong province is where Evergrande is based.
The Guangdong government said that it would send people to the company to “oversee risk management, strengthen internal controls and maintain normal operations”.
It was also reported that China’s central bank, banking and insurance regulator and its securities regulator sought to reassure the market with statements.
People’s Bank of China said that short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long-term. Reuters reported the China Banking and Insurance Regulatory Commission (CBIRC) said the Evergrande issue would not affect the industry’s normal operations.
News.com.au quoted Bloomberg’s Will Mathis and Tiago Ramos Alfaro:
Distress among Chinese real estate firms is spreading, amid a debt crisis at giant China Evergrande Group that’s intensifying. The broader sector strains have pushed yields on Chinese junk dollar bonds – many of which come from the industry – near record highs. That’s made it difficult for distressed developers to refinance their maturing debt in the offshore market, which has contributed to a wave of defaults.
How have ASX shares responded?
While ASX miners like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Mineral Resources Limited (ASX: MIN) did each dip on Monday, they all have gone up today and recovered most of that lost ground.
Time will tell whether the situation worsens for Evergrande (and others) or not, and any longer-term effect that may have on ASX shares.