Evergrande shares slump on renewed default fears

Image source, EPA

After news that Evergrande Group could default on its debt repayment, worries about China’s property giant Evergrande Group are back.

On Monday, shares in the company fell to an all-time low of 20%. The crisis has already affected the banking and property sectors.

Evergrande stated that it was unable to guarantee its “financial obligations” in a statement released over the weekend.

It has liabilities of £300bn (£226bn), including to firms outside China.

According to reports, Hui Ka Yan, a billionaire property developer was called by Chinese officials in order to clarify the situation.

Evergrande said that, “Although the group is in a liquidity crisis at the moment, there are no guarantees the group will continue its financial obligations.”

The company was notified that it had to fulfill its obligations pursuant to a $260 million guarantee.

It may result in creditors requesting acceleration of repayment, if the group cannot meet its guarantees obligations.

Conita Hong, Tiger Faith Asset Management’s investment director, stated that Evergrande had tried for several months to liquidate assets in order to repay its debts. But, this latest statement indicated the company would “surrender” and will need assistance.

“This is a bad sign,” she stated, noting that Evergrande’s problems are likely to take years of resolution even with assistance from China.

The central bank, banks and insurance regulators, and securities regulator all released statements over the weekend, stating that the potential risk to the sector’s property could be managed.

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China’s booming residential and commercial property markets prompted Xi Jinping to put a halt to reckless lending to a sector some experts feared was headed for collapse.

Evergrande is one of the many developers that were starved to death by regulatory restrictions on borrowing. This led to credit downgrades, offshore defaults and sell-offs of bonds and shares of developers.

In October, regulators asked banks to ease lending to developers to stem the chaos and to allow property companies to raise more capital from investors.

Sunshine 100 China Holdings, a smaller developer of property in China, announced Monday that it defaulted on $170m of debt payments “due to liquidity problems arising out of the adverse effect of many factors such as the macroeconomic climate and the real-estate industry.”

Source: BBC.com

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