Evergrande crisis: work resumes on 10 projects as developer restores calm, buys time to repay more creditors

Asia's Tech News Daily

China Evergrande, contracted sales crashed, Chinese economy, weakening economy.

China Evergrande said it has restarted work on more than 10 projects across six mainland cities, trying to portray some semblance of stability in its operations soon after averting a potentially calamitous default on its offshore debt.

The developer, saddled with 1.97 trillion yuan (US$305 billion) of liabilities, identified the projects in Shenzhen, Dongguan, Jiangmen, Shanwei, Zhuhai, and Zhongshan with photos of buildings and workers at construction sites in a statement posted on its WeChat social media account.

The group will shoulder the social responsibility and ensure completion of the buildings, according to the statement, saying it will “make an all-out effort to comply with the governments’ requirements.”

Evergrande had land reserves covering 778 projects in 233 cities across China as of June 30, according to its latest interim report. Some of them had been suspended because of its failure to pay suppliers and contractors, a crisis that shook the industry and investors in Chinese offshore property stocks and bonds.

“The statement aimed to trigger an upbeat mood about Evergrande’s outlook,” said Ding Haifeng, a consultant at Shanghai-based financial advisory firm Integrity. “Its homebuyers, creditors and shareholders may have seen a ray of hope after the project resumption but the company will still be struggling with upcoming default tests.”

As confidence in the company waned, Evergrande’s contracted sales crashed. It generated only 3.65 billion yuan in September, according to an exchange filing on October 20, versus 38.1 billion yuan in August. That marked the worst month since February 2012. Sales in the quarter amounted to 85.5 billion yuan, the lowest since the April-to-June period in 2016.

The property sector is a key pillar in the Chinese economy, contributing about one-fifth to the gross domestic product. Evergrande’s financial health is being monitored for signs of deeper distress as China continues to tighten the screws on leverage to control financial risk in a weakening economy.

It had 571.8 billion yuan of borrowings from lenders and creditors on June 30, including 240 billion yuan due within 12 months. It had US$19.9 billion of dollar-based bonds outstanding. While Evergrande has remitted US$83.5 million interest to offshore bondholders last week before a 30-day grace period expired on Saturday, more interest-payment deadlines await before the year is out.

Chairman and founder Hui Ka-yan has attempted to raise cash by selling assets to repay creditors, with mixed results. A plan to sell a controlling stake in its property services arm to Hopson Development for US$2.6 billion has run into a bitter dispute.

Yuexiu Property has also reportedly walked away from a US$1.7 billion plan to buy the 26-storey China Evergrande office tower in Wan Chai, Hong Kong. The developer, also based in southern Guangdong province, has instead decided to raise cash by selling one of its prized assets.

The firm announced a plan to inject an office building known as Yuexiu Financial Tower, one of the 10 tallest buildings in the provincial capital of Guangzhou, into Yuexiu REIT for 7.8 billion yuan, according to a stock exchange filing late Sunday.

Additional reporting by Cheryl Heng

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