As Evergrande trims offshore debt and rebuilds investor confidence, SMEs and banks are overlooked in payment queue

developer, special dividend payout, “three red lines” deleveraging campaign

China Evergrande’s creditors face uncertain times ahead. The world’s most-indebted developer has to navigate through choppy waters, including political concerns, before it can steady itself after a huge beating in stock and bond markets over the past five months.

Billionaire chairman Hui Ka-yan has taken efforts to reduce debt and shore up market confidence after it came in Beijing’s cross hairs for its massive borrowings and was prevented from getting new loans in the second half last year.

Some of the measures included early redemption of purchase offshore bonds and deep discounts on home sales to boost its cash flow. A special dividend payout to shareholders, audacious at a time of crisis, has since been scrapped.

The Shenzhen-based developer has seen its debt fall to nearly 570 billion yuan (US$87.7 billion) from a peak of 870 billion yuan in 2020. Its net debt-to-equity ratio has dropped below 100 per cent, in line with one of the central bank’s “three red lines” deleveraging campaign. Still, there are concerns it may have put local banks and small suppliers at the back of the queue among creditors.

developer, special dividend payout, “three red lines” deleveraging campaign

“The situation has not turned brighter even after it met [one of] the three red lines,” said Zhou Chuanyi, a credit analyst at Lucror Analytics in Singapore. “Cutting debt is a step in the right direction, but we are not sure whether the government will prioritise which debts it would like the company to repay.”

Evergrande’s shares have plunged by some 75 per cent in Hong Kong over the past 12 months, while its foreign-currency bonds due in 2022 and 2025 have skidded to new lows.

The three red lines, unveiled last August, limit borrowings by defining thresholds on liability-to-asset ratio at 70 per cent, net debt-to-equity ratio of 100 per cent, and cash-to-short-term debt multiple of one time. Evergrande was the only developer among top-10 peers in breach of all ratios.

While it is not clear what message the officials at the Financial Stability and Development Committee delivered to Hui at a meeting in Beijing, just before the billionaire appeared at the Communist Party’s 100th anniversary celebration on July 1. Analysts said the authorities would like Evergrande to resolve its debt situation without setting off systemic risks and social instability.

developer, special dividend payout, “three red lines” deleveraging campaign

Chairman Hui Ka-yan in an April 2020 file picture. Photo: Handout

“The government cares more about the loans owed to banks, the money it has not paid the big and small suppliers and the homes sold but not delivered to the individuals,” said Tommy Wu, senior economist at Oxford Economics. “If these borrowings turn bad, it will affect the financial system and real economy. But when there is a limited pool of money, the government would like to see them [banks and suppliers] get paid first.”

Reports of banks rejecting commercial acceptance bills (CABs), or IOU notes issued by Evergrande to its suppliers, have gone viral on Chinese social media this year.

One contractor told the Post that CABs totalling 6 million yuan had matured without getting paid. The developer has been making excuses and has delayed the payment for months, said the business owner, who only gave his family name Lin.

“This money is extremely important for the survival of my company,” he added. “If Evergrande delays by another couple of months, my company will have to shut down and all my employees would be without jobs.”

Lin, who runs a painting and heat-insulation business in Nantong, Jiangsu province, is working on six Evergrande projects in the Yangtze River Delta region, accounting for half of his turnover.

Evergrande had a “small amount of CABs overdue and had arranged for repayment in June, a spokesperson said. The company declined to comment when asked by the Post last week on whether more CABs were rejected or unpaid in July.

“Most of its upstream and downstream suppliers are small and medium-sized enterprises that the central government has emphasised to protect and support,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management. “Leaving SMEs struggling and dying, while paying its capital-market or boosting equity market morale, is definitely not what the government would like to see.”

The issue of supporting SMEs assumes added significance after Chinese Premier Li Keqiang and other leaders emphasised at a meeting in May they would increase support for small businesses as many were under huge pressure due to record high commodity prices.

“If some regulators came out and said what the company has done is impressive, it would be a real boost,” said Raymond Cheng, a property analyst at CGS-CIMB Securities, who downgraded the stock to hold from add on April 1.

“Investors would only temper their concerns when Evergrande takes actual meaningful and feasible actions, [such as] the disposal of some of assets, so that it can have a better access to bank financing,” Cheng added.

 

News Related

OTHER NEWS

Energy supplier Green lines up insolvency advisers amid industry crisis

The company, which has approximately 250,000 customers and close to 200 staff, is working with Alvarez & Marsal as it faces going into administration, Sky News learns. Read more »

Energy emergency, electric taxis and Britain's newest bank

Listen to “Energy emergency, electric taxis and Britain's newest bank”. With the business secretary telling Sky News the government could make emergency loans to suppliers suffering from rising energy prices, ... Read more »

Interview | IndoStar Capital bets big on commercial vehicle finance, charts out five-year plan

Private equity backed non-bank lender, IndoStar Capital, is trimming down its corporate book and focusing on building a granular retail book. In a conversation with Moneycontrol, R Sridhar, Executive Vice-Chairman ... Read more »

RBI imposes monetary penalty on Porbandar Commercial Co-operative Bank

The Reserve Bank of India on September 21 imposed a monetary penalty of Rs 1 lakh on Gujarat-based Porbandar Commercial Co-operative Bank Ltd over contravention of directions issued by the RBI ... Read more »

Russian economy recovered despite unstable global situation — Putin

The head of state noted that the most important task of the new line-up of the parliament will be the adoption of the federal budget for the next three years Read more »

Bank of Thailand says increased public debt ceiling to help economy

FILE PHOTO: Bank of Thailand Deputy Governor Mathee Supapongse in 2015 (Photo supplied) Thailand's increased public debt ceiling will give flexibility in policy implementation to cope with the coronavirus and ... Read more »

Energy Crisis: PM 'not worried' about energy shortages

Boris Johnon said that he is "very confident" in the UK's supply chains to keep energy supplies going. Read more »

Boris Johnson says energy crisis is a 'short-term problem' and dismisses risk of Christmas disruption

The prime minister has described Britain’s energy crisis as a “short-term problem” and said he does not think there will be disruption to food supplies at Christmas. Speaking to Sky ... Read more »

Boost for shoppers as major carbon dioxide supplier to restart production after government talks

The government has reached agreement with CF Industries to restart carbon dioxide production at its UK sites following talks between the company and Business Secretary Kwasi Kwarteng. The US firm ... Read more »

Food safety regulator FSSAI introduces new logo for ‘vegan' products

Photo credit: ANI The Food Safety and Standards Authority (FSSAI) of India on September 21 introduced a new logo to identify vegan products in the country on Tuesday. The new ... Read more »

Amazon's spending 20% of its revenue on lawyers is questionable, should be investigated: CAIT

Representative image. The Confederation of All India Traders (CAIT) has reiterated its demand for a CBI probe into the practices of US-based e-commerce firm Amazon after a report claimed that ... Read more »

Gold prices edged higher after 3 days of fall; silver up Rs 486 a kg

Gold prices rose by 231 to Rs 46,513 per 10 gram in the Mumbai retail market after three days of straight fall on a softer dollar and safe-haven appeal. The ... Read more »

Indiabulls Housing Finance raises Rs 808 crore via NCDs

Indiabulls Housing Finance on Tuesday said it has raised Rs 807.83 crore through issuance of non-convertible debentures (NCDs). This was the tranche-1 NCD issue of the housing finance company with ... Read more »

Russia has fully overcome economic decline caused by pandemic — Putin

The Russian leader noted that industrial growth in January-July was 4.4% Read more »

LifeCell International secures Rs 255 crore funding from OrbiMed Asia and existing founders

Leading stem cell bank and reproductive genetic testing services provider LifeCell International on Tuesday said it has secured Rs 255 crore capital from healthcare investment firm OrbiMed and existing founders ... Read more »

‘Development of purchasing power is downright disappointing'

For many workers it is increasingly difficult to make ends meet due to lagging incomes, higher taxes and rising expenses, says the trade union VCP in a first reaction. “The ... Read more »

Energy crisis: The blame game has begun - but are some of the claims just hot air?

Sky's Ed Conway takes a look at where fingers of blame are pointing and says the energy crunch will likely force the country to consider bold choices and significant investment to avoid a repeat. Read more »

RIL, Mahindra, Wipro among over 100 firms committed to reporting stakeholder capitalism metrics: World Economic Forum

WEF_World economic forum More than 100 business houses globally, including Reliance Industries, Mahindra Group and Wipro from India, have committed to including Stakeholder Capitalism Metrics in their annual or sustainability ... Read more »

Yulu ties up with Adani Electricity to facilitate 24x7 battery charging access across Mumbai

E-mobility service provider Yulu has partnered with Adani Electricity Mumbai Limited (Adani Electricity) to provide day-long battery charging access across the financial capital, the company said in a statement. Under ... Read more »

Analysis | Evergrande and its likely positive implications for India

A basic law of physics is that the higher an object is propelled into the atmosphere, the faster it returns to the ground – unless there is enough velocity to ... Read more »

Unocoin announces FASTag payment services for cryptocurrency users

Unocoin | PC-Shutterstock Bengaluru-based technology startup and India’s first entrant into the bitcoin industry, Unocoin, on September 21 announced the launch of a new app feature that supports users with ... Read more »

COVID-19 didn't hit Railways business hard, more orders expected: Texmaco Rail deputy MD Ashish Gupta

Ashish Gupta. India’s market for rolling stock, or railway wagons, coaches and locomotives, has completely recovered from the impact of COVID-19, and the sector is now looking at even more ... Read more »

Chinese consumers rush to order Apple's iPhone 13 as cheaper prices lure bargain hunters

Chinese consumers have pre-ordered millions of the new iPhone 13 across the country’s multiple e-commerce platforms, resulting in online traffic jams and viral social media discussions. Cupertino-based Apple last Friday ... Read more »

Approaching festivals fail to end pandemic blues for Maharashtra shopping malls

Malls are hopeful that the crowds would start flocking to the malls as more people get vaccinated towards the end of September after completing the mandatory 84-day gap between two ... Read more »

This festive season, more brands enlist influencers, to spend Rs 600 crore

Social media star Nagma Mirajkar, who has 5.5 million followers on Instagram and over one million subscribers on YouTube, is busy this festive season. More companies are making a beeline ... Read more »

Development of fuel efficient cars to remain critical in sales strategy: Maruti Suzuki

Representative Image Maruti Suzuki India will keep developing and launching cars with great fuel efficiency as it remains a critical factor for customers while making a purchase decision, a senior ... Read more »

Judge rules that Helpling cleaners are not self-employed

The court of Amsterdam decided on Tuesday that cleaners who look for and accept jobs via the Helpling platform are not independent entrepreneurs, but temporary workers. As an employer, Helpling ... Read more »

Economic Development Ministry raises Russia's forecast for oil and gas output in 2021

Next year Russia is expected to produce 559.9 mln tonnes of oil, which is 1.4% higher than the current estimate Read more »

Taking Stock: Market bounces back, Nifty above 17,500; 3 factors that powered the rally

Indian benchmark indices made a smart comeback on September 21 after two days of selling, supported by positive trends in global markets. At close, the Sensex was up 514.34 points, ... Read more »

Chalet Hotels joins Climate Group's initiatives linked to renewable energy, electric mobility

Chalet Hotels Limited (CHL) on September 21 said that it has become the first hospitality company globally to join Climate Group’s initiatives linked to renewable electricity, energy efficiency and electric ... Read more »

Court: Helpling cleaners are temporary workers

Cleaners who work via the online platform Helpling are temporary workers. The Amsterdam Court of Appeal has decided this on appeal today. This means, among other things, that the cleaners ... Read more »

Beauty sleep is real: five overnight treatments to help give you skin that's healthy, plump and well rested

Sleeping seven to nine hours a day is easier said than done for some, but not doing so comes with consequences for our bodies. About 35 per cent of people ... Read more »

Explainer | The Evergrande crisis and how it can spiral into a global financial crunch

China’s property companies are big drivers of its economy – contributing nearly 30 percent as per estimates by the National Bureau of Economic Research working paper. (Image: Reuters) Once a ... Read more »

CO2 shortage: Poultry, pork and bakery products could disappear from supermarkets 'within days', industry chief warns

Surging energy costs have resulted in the suspension of operations at fertiliser plants - which produce CO2 as a by-product - having a knock-on effect on the food industry. Read more »

IPO-bound Paytm employees add 5.45 lakh more shares for monetisation

Digital payments and financial firm Paytm has received over 5.45 lakh shares from around 20 more employees for monetisation in its upcoming IPO. As per a regulatory filing by One97 ... Read more »

Rupee recovers 13 paise to close at 73.61 against US dollar

Representative image The rupee on Tuesday rebounded by 13 paise to close at 73.61 (provisional) against the US dollar following a firm trend in domestic equities and losses in the ... Read more »

PayNearby cash collection crosses Rs 350 crores in monthly GTV

(Representative image) Digital payments firm PayNearby on September 21 said its enterprise offering that facilitates cash collection as a service crossed Rs 350 crore worth of transactions in monthly Gross ... Read more »

Trend Micro launches its first Cloud One data centre in India

Trend Micro Cloud One. Global cybersecurity leader Trend Micro Incorporated on September 21 announced the launch of its Cloud One regional data centre in India to uphold data sovereignty and ... Read more »

Skoda Auto to replace fuel pumps in SUV Kushaq

Skoda Auto is going to replace fuel pumps in the earliest batch of the Kushaq SUV after several consumers raised complaints about the vehicle’s performance. Skoda has not announced any ... Read more »

Silver prices snap 4-day losing streak on recovery in industrial metals, firm gold and dollar downtick

Silver prices on September 21 soared above Rs 60,000 a kg snapping a four-day losing streak as industrial metals recovered, gold remained firm and the dollar weakened. The precious metal ... Read more »