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Beyond China Evergrande, many local real estate developers and players are also struggling to meet up their respective debt obligations.
Embattled Chinese property developer, China Evergrande Group (HKG: 3333) is close to seeing its business restructured as it revealed over the weekend that it will not be able to meet up with the obligation to repay the sum of $82.5 million due on Monday. The update about the potential default came following a series of late hour repayment in the past months as the company struggles through one of the country’s worst financial crises for a property developer.
In the issued statement, Evergrande said “since September 2021, the Group has been diligently reviewing its capital structure and liquidity condition with the help of its financial and legal advisors, evaluating all available strategic options, and maintaining ongoing dialogue with offshore creditors,” the firm added that:
“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 of the Company’s offshore indebtedness for the benefit of all stakeholders.”
On the back of this very pessimistic statement, reports have it that the government has summoned the company’s Chairman, Xu Jiayin to explain the statement issued. As a way to manage the debt crises, China Evergrande has reportedly set up a functional risk management committee that also features officials from state governments.
Tighter monetary policies from the People’s Bank of China (PBoC) have also contributed to the inability of China Evergrande to raise money in a bid to finance both its offshore and onshore debt holders. The company’s bogus liabilities are worth over $300 billion.
On the back of this news, China Evergrande stock plummeted to its lowest price point of HK$1.81 in more than a decade. The shares are down 19.56% at the time of writing.
China Evergrande Default and the Spreading Ripple Effect
Beyond China Evergrande, many local real estate developers and players are also struggling to meet up their respective debt obligations. One of Evergrande’s main rivals, Kaisa Group Holdings Ltd (HKG: 1638) is also on the verge of missing the repayment deadline on a $400 million bond whose maturity is slated for Tuesday. The company owes a smaller $12 billion, however, worth enough to stir an offset in the firm in the longer run.
Other smaller entities including Sunshine 100 China Holdings Ltd have also been tagged with a default of $179 million of debt and interest payments that had been due on Sunday sending its shares down by 14.10%.
Additional fallout in China Evergrande default may likely fuel a more concerning ripple effect through the market and the Chinese economy, a development that should be avoided seeing the current outbreak of COVID-19 variant, Omicron.