Public companies to remediate Evergrande faltering

Asia's Tech News Daily

Public companies to remediate Evergrande faltering

Is Evergrande still alive? Hardly. On Monday, the share price of the Chinese real estate giant plunged deeper than ever. The company had hinted on Friday that it is now really at the end of its rope.

Previously, Evergrande managed to scrape together the money at the last minute to meet the interest payments on bond loans, albeit thirty days late. That didn’t seem to work on Friday.

“There is no guarantee that the group will have sufficient resources to continue meeting its financial obligations,” the statement read. Later, a number of creditors stated that they had indeed received nothing.

However, the company is unlikely to go bankrupt. A special committee has been set up to restructure it. The Chinese government has the de facto majority in this regard. Of the seven seats, four are for state-owned or regional government-owned companies in Guangdong Province, where Evergrande is located.

Xu Jiayin, who also calls himself Hui Ka Yan, is still the formal owner of Evergrande, but his role seems largely over. He will have to listen to what the majority of the committee imposes on him.

Those public companies have been given a difficult task. They need to restructure Evergrande, which has an estimated $260 billion in debt, in a way that won’t put other real estate companies in too much trouble.

Also read: Shock for China: prices of new-build homes are falling

Tried and tested recipe

Pushing government control into private companies is now a tried and tested recipe in China. At the beginning of last year, HNA, owner of the Hainan Airlines airline and specialized in tourism and logistics, was also restructured under state leadership – and probably with state money. The government was concerned about large, irresponsible purchases made by the company abroad. The restructuring was so slow, secretive and silent that it did not cause major economic shocks.

Insurer Anbang, which took over Dutch insurer Vivat in 2015, was also restructured in this way. Among other things, Anbang was suspected of financing large, prestigious but irresponsible foreign purchases with insurance premiums. Vivat (with brands such as Actiam, Reaal and Zwitserleven) was sold and is now called Athora Netherlands.

The question is whether the restructuring of Evergrande can also go so smoothly and gradually. Not only are Evergrande’s debts staggering, the company is active in an industry estimated to make up a third of China’s economy. It is the second largest real estate company in China by sales volume.

The government doesn’t want to save Evergrande. But China does want the national real estate sector to survive. And for that, parts of Evergrande probably also have to survive.

It is also about guaranteeing social tranquility. People who have already paid for a house but have not yet received it should still get it. Construction companies and suppliers that have not yet been paid for their work must be bought off to prevent social unrest.

Loan extra

The most important measure the government has taken to restore market confidence is easing the conditions under which banks are allowed to lend money. The central bank announced on Monday that banks will have to hold 0.5 percent less financial reserves from December 15. As a result, they can lend around 167 billion euros extra. At the same time, the Politburo of the Communist Party of China announced it would take measures to “promote public housing and support the housing market.”

Thus, the Chinese government hopes to create the space to gradually dismantle Evergrande and out of the limelight. The public companies involved in this will probably bear part of the debt. It becomes their job to figure out which parts of Evergrande can disappear, and what can or should survive. It is not clear what exactly this will mean for international creditors.

Public companies to remediate Evergrande faltering
Source link Public companies to remediate Evergrande faltering

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