Evergrande Crisis Escalates as Protests Break Out in China Bloomberg News 13 September 2021 https://www.bloomberg.com/news/arti...ests-break-out-across-china?srnd=premium-asia Developer faces backlash from homebuyers, investors, employees Dollar bonds slump on Monday, pricing in near-certain default China Evergrande Group is facing mounting protests by homebuyers, retail investors and even its own employees, raising the stakes for authorities in Beijing as they try to prevent the property giant’s debt crisis from sparking social unrest. Police descended on Evergrande’s Shenzhen headquarters late Monday after dozens of people gathered to demand repayments on overdue wealth management products. Protesters numbered in the hundreds on Sunday, Caixin reported.
https://www.smh.com.au/business/com...falls-deeper-into-crisis-20210914-p58rk5.html Chinese property giant Evergrande falls deeper into crisis By Rebecca Choong Wilkins September 14, 2021 China’s Evergrande Group issued a dire assessment of its financial health, saying it faces “tremendous” liquidity strains and has hired advisers for what could be one of the country’s largest-ever debt restructurings. The appraisal was Evergrande’s most downbeat since market confidence in the developer began deteriorating in May, and followed a spate of protests over the past week by angry homebuyers, retail investors and employees demanding that the company make good on its obligations. The company’s billionaire founder, Hui Ka Yan, pledged to complete projects this month, issuing what he called a “military order” to ensure property construction and delivery.Credit:Bloomberg Evergrande’s dollar bonds and shares sank as markets priced in a near-certain likelihood of default. The extent of the losses facing investors will depend in part on whether Chinese authorities and state-run banks take steps to limit the fallout. Evergrande has emerged as the biggest test yet of President Xi Jinping’s willingness to let overindebted companies fail as he tries to wring the excesses out of China’s $US54 trillion ($73.4 trillion) financial system. Without state intervention, the risk is that Evergrande enters a downward spiral. The developer said in its statement on Tuesday that property sales will drop in the normally buoyant month of September because of waning confidence among homebuyers, who often need to give the company large down payments for properties that may take years to complete. Evergrande said it had made “no material progress” on plans to sell stakes in its electric-car and property services units, adding that the planned disposal of its Hong Kong headquarters hadn’t been completed as expected. Asset sales had been one of the most important pillars of Evergrande’s plan to escape its cash crunch. Shares of Evergrande fell as much as 10 per cent on Tuesday morning in Hong Kong, and have lost about 80 per cent this year. Its electric-vehicle unit tumbled as much as 20 per cent. Evergrande’s 8.25 per cent dollar bond due 2022 dropped 4.8 cents to 27.7 cents, according to Bloomberg-compiled prices. The company’s liquidity problems have escalated in recent days after several of its subsidiaries failed to repay wealth management products, a key source of short-term funding for Evergrande and other developers. A backlash against the company’s plan to extend payment deadlines on the products has triggered protests at Evergrande’s Shenzhen headquarters and at other offices across China. Evergrande, which denied rumours late Monday that it would file for bankruptcy, hired Houlihan Lokey and Admiralty Harbour Capital as joint financial advisers to assess the firm’s capital structure. Houlihan Lokey has one of the largest financial restructuring operations globally, having advised on some 1,400 cases with more than $US3 trillion in debt claims since 1988, according to its website. Its largest case by assets was Lehman Brothers. “It looks like they are working on debt restructuring after no concrete results on asset disposals, and the first task is to stabilise the holders of wealth management products which could be a social issue,” said Daniel Fan, a credit analyst at Bloomberg Intelligence. “It seems the developer is working on rescheduling pretty much all onshore debt, and the next step is to do the same for offshore investors.” China has been cracking down on its property developers.Credit:Bloomberg Evergrande has more than $US300 billion in liabilities, almost half of which are payables including to contractors. The group had received down payments on yet-to-be-completed properties from more than 1.5 million home buyers as of December. While Evergrande doesn’t have any bonds maturing until 2022, it faces $US669 million in coupon payments this year, including $US83.5 million due September 23 for a dollar note. Investors are closely watching the deadline given the potential for a debt restructuring. Fitch Ratings highlighted an increased chance of default on these interest payments when it slashed the firm’s ratings deeper into junk territory last week. Evergrande said in August it was forced to suspend work on some projects due to overdue payables. The company’s billionaire founder, Hui Ka Yan, pledged to complete projects this month, issuing what he called a “military order” to ensure property construction and delivery. The protests against Evergrande were sparked by its proposal late last week to impose lengthy repayment delays on holders of WMPs. While the firm tweaked its plan on Monday to mitigate the backlash, retail and institutional investors will still face delays unless they accept repayment in the form of Evergrande-developed properties. Two units failed to discharge their guarantee obligations on time for wealth management products worth 934 million yuan ($197 million), the company said on Tuesday, adding it’s in talks with issuers and investors on a repayment arrangement. Bloomberg
https://www.bloomberg.com/news/arti...io-is-an-uncontrolled-crash?srnd=premium-asia Markets China’s Nightmare Evergrande Scenario Is an Uncontrolled Crash By Hong Shen , Enda Curran , and Sofia Horta e Costa 17 September 2021 Concern is mounting over the troubled developer’s fate Beijing faces pressure to intervene amid signs of contagion China Warns Banks Evergrande Won’t Make Interest Payments Protests intensify at China Evergrande Group offices across the country as the developer falls further behind on promises to more than 70,000 investors. Construction of unfinished properties with enough floor space to cover three-fourths of Manhattan grinds to a halt, leaving more than a million homebuyers in limbo. Fire sales pummel an already shaky real estate market, squeezing other developers and rippling through a supply chain that accounts for more than a quarter of Chinese economic output. Covid-weary consumers retrench even further, and the risk of popular discontent rises during a politically sensitive transition period for President Xi Jinping. Credit-market stress spreads from lower-rated property companies to stronger peers and banks. Global investors who bought $527 billion of Chinese stocks and bonds in the 15 months through June begin to sell. While it’s impossible to know for sure what would happen if Beijing allows Evergrande’s downward spiral to continue unabated, China watchers are gaming out worst-case scenarios as they contemplate how much pain the Communist Party is willing to tolerate. Pressure to intervene is growing as signs of financial contagion increase. “As a systemically important developer, an Evergrande bankruptcy would cause problems for the entire property sector,” said Shen Meng, director of Chanson & Co., a Beijing-based boutique investment bank. “Debt recovery efforts by creditors would lead to fire sales of assets and hit housing prices. Profit margins across the supply chain would be squeezed. It would also lead to panic selling in capital markets.” For now, Shen and nearly all of the other bankers, analysts and investors interviewed for this story say Beijing is in no mood for a Lehman moment. Rather than allow a chaotic collapse into bankruptcy, they predict regulators will engineer a restructuring of Evergrande’s $300 billion pile of liabilities that keeps systemic risk to a minimum. Markets seem to agree: the Shanghai Composite Index is less than 3% from a six-year high and the yuan is trading near the strongest level in three months against the dollar. Yet a benign outcome is far from assured. Beijing’s bungled stock-market rescue in 2015 showed how difficult it can be for policy makers to control financial outcomes, even in a system where the government runs most of the banks and can exert outsized pressure on creditors, suppliers and other counterparties. Contagion risk was on full display Thursday. Chinese junk-bond yields jumped to an 18-month high and shares of real estate companies plunged after Evergrande had its credit rating downgraded and requested a trading halt in its onshore bonds. Some banks in China appear to be hoarding yuan at the highest cost in almost four years, a sign they may be preparing for what a Mizuho Financial Group Inc. strategist called a “liquidity squeeze in crisis mode.” Where Xi will ultimately draw the line remains a mystery. While China’s top financial regulator has urged billionaire Evergrande founder Hui Ka Yan to solve his company’s debt problems, authorities have yet to spell out whether the government would allow a major debt restructuring or bankruptcy. Even senior officials at state-owned banks say privately that they’re still waiting for guidance on a long-term solution from top leaders in Beijing. Evergrande’s main banks were told by China’s housing ministry this week that the developer won’t be able to make interest payments due Sept. 20, according to people familiar with the matter. China’s government isn’t averse to taking over companies from the private sector if needed. It seized Baoshang Bank Co. in 2019 and assumed control of HNA Group Co., the once-sprawling conglomerate, in early 2020 after the coronavirus pandemic decimated the company’s main travel business. Court-led restructurings have also become more common in recent years, with more than 700 being completed in 2020. The Evergrande endgame may depend largely on how Xi decides to balance his goals of maintaining social and financial stability against his multi-year campaign to reduce moral hazard. The timing is particularly tricky as China juggles an economic slowdown, a sweeping crackdown on the private sector and rising tensions with Washington -- all in the runup to a once-in-five-year leadership reshuffle in 2022 at which Xi is set to extend his indefinite rule. “The government has to be very, very careful in balancing support for Evergrande,” said Yu Yong, a former China Banking and Insurance Regulatory Commission regulator and now chief risk officer at China Agriculture Reinsurance Fund. “Property is the biggest bubble that everyone has been talking about in China,” Yu told Everbright Sun Hung Kai analyst Jonas Short in a recent podcast. “So if anything happens, this could clearly cause systematic risk to the whole China economy.” Here are some of the factors that may sway Chinese leaders: Social Unrest Maintaining social order has always been paramount for the Communist Party, which has little tolerance for protests of any kind. In Guangzhou, homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction. Disgruntled retail investors have gathered at the company’s Shenzhen headquarters for at least three straight days this week, and unconfirmed videos of protests against the developer in other parts of China have been shared widely online. Evergrande had 1.3 trillion yuan ($202 billion) in presale liabilities at the end of June, equivalent to about 1.4 million individual properties that it has committed to complete, according to a Capital Economics report last week. “If Evergrande had to dump its inventory onto the market” it would “drag down property prices substantially,” said Hao Hong, chief strategist at Bocom International. Without a social safety net and with limited places to put their money, Chinese savers have for years been encouraged to buy homes whose prices were only ever supposed to go up. Today, real estate accounts for 40% of household assets and buying a house (or two) is a cultural touchstone. While housing affordability has become a hot topic in the West, many Chinese are more likely to protest falling home prices than spiking ones. “Given that the bulk of people’s wealth is already in property, even a 10% correction would be a serious knock to many people,” said Fraser Howie, an independent analyst and co-author of books on Chinese finance who has been following the country’s corporate sector for decades. “It would certainly knock their hopes and dreams and expectations about what property is.” Another potential flashpoint is whether Evergrande can repay high-yield wealth management products that it sold to thousands of retail investors, including many of its own employees. About 40 billion yuan of the WMPs are due to be repaid, according to Caixin, a Chinese financial news service. Evergrande is trying to free up cash by selling assets, including stakes in its electric-car and property-management businesses, but has so far made little progress. Capital Markets Evergrande is the largest high-yield dollar bond issuer in China, accounting for 16% of outstanding notes, according to Bank of America Corp. analysts. Should the company collapse, that alone would push the default rate on the country’s junk dollar bond market to 14% from 3%, they wrote in a note this month. While Beijing has become more comfortable with allowing weaker businesses to fail, an uncontrolled spike in offshore funding costs would risk derailing a key source of financing. It could also undermine global confidence in the country’s issuers at a time when Beijing is pushing for larger foreign investor ownership. Yields on China’s junk dollar bonds are nearing 14%, up from about 7.4% in February, according to a Bloomberg index. Evergrande dollar debt holders may not have priority in a restructuring, Citigroup strategists say. The stakes are higher on the mainland, where the credit market is about 15 times the size at $12 trillion. While Evergrande is less of a whale onshore, a collapse could force banks to cut their holdings of corporate notes and even freeze money markets -- the very plumbing of China’s financial system. In such a credit crunch, the government or central bank would likely be forced to act. Banks involved in property lending may come under pressure, leading to an increase in soured loans. Smaller banks exposed to Evergrande or other weaker developers may face “significant” increases in non-performing loans in the event of a default, according to Fitch Ratings. Economic Impact Concern over Evergrande comes at a time when China’s economy is already slowing. Aggressive controls to curb outbreaks of Covid-19 are hurting retail spending and travel, while measures to cool property prices are taking a toll. Sales of household appliances, cars and furniture worsened in August. Source: Bank of America Global Research Data this week showed home sales by value slumped 20% in August from a year earlier, the biggest drop since the onset of the coronavirus early last year. Responding to a question on Evergrande’s potential impact on the economy, National Bureau of Statistics spokesman Fu Linghui said some large property enterprises are running into difficulties and the fallout “remains to be seen.” China’s current priorities of promoting “common prosperity” and deterring excessive risk-taking mean there’s unlikely to be any easing of property curbs this year, according to Macquarie Group Ltd. The sector will be a “main growth headwind” for next year, although policy makers may loosen restrictions to defend growth goals, Macquarie analysts wrote in a Wednesday note. A correction in China’s property market would not only slow the domestic economy but have global consequences too. “A significant slowdown in property construction over the next few years appears probable already, and would become even more likely in the event of an Evergrande failure or bankruptcy,” said Logan Wright, a Hong Kong-based director at research firm Rhodium Group LLC. “A long-term slowdown in property construction, an industry that represents around a fifth or a quarter of China’s economy by most estimates, would cause a significant decline in GDP growth, commodity demand, and would likely have disinflationary effects globally.” — With assistance by Kevin Kingsbury, and Emma Dong
https://www.smh.com.au/business/com...veloper-sinic-sinks-87pc-20210920-p58tby.html Contagion worries as Chinese property developer Sinic sinks 87pc By Lianting Tu and Low De Wei September 20, 2021 Sinic Holdings Group has halted trading after an 87 per cent slump in its shares on Monday afternoon. The Shanghai-based developer didn’t give any reason for the trading halt in Hong Kong. The sudden selloff in the last two hours leading up to the suspension was accompanied by a surge in trading volume that was about 14 times its average in the past year, according to Bloomberg-compiled data. The company has a 9.5 per cent $US246 million ($340 million) bond due on October 18 and Fitch Ratings revised its outlook to negative last week. The Monday share plunge has slashed its market value to just under $US230 million, which is tiny for a listed developer in the city. An officer at the firm’s Hong Kong office said there’s no one to attend to media inquires. Evergrande has become the poster-child of Beijing’s crackdown on debt-addicted property developers.Credit:AP “It’s the same story as everywhere else -- investors are concerned about the liquidity,” said Philip Tse, director and head of Hong Kong and China property research at Bocom International Holdings Co Ltd. “I think there are most likely some margin calls on some of the major shareholders” by looking at Sinic’s stock price pattern this afternoon. The move comes as Hong Kong’s property gauge dropped the most since May 2020 amid growing investor angst about China’s real estate crackdown and worries that Beijing may tighten grip on the city’s property sector in its “Common Prosperity” campaign. Risk-off sentiment in financial markets was widespread on Monday. Junk-rated Chinese dollar bonds slid by as much as 2 cents. The Hong Kong dollar fell to the lowest level this month. Bloomberg
Dead duck’s mouth’ — CEO of China Evergrande’s leaked letter to employees gets panned on social media Published: Sept. 21, 2021 By Barbara Kollmeyer and Frances Yue https://www.marketwatch.com/story/d...ned-on-social-media-11632236362?mod=home-page This photo taken on June 5, 2017 shows Evergrande's president Xu Jiayin, attending a meeting in Wuhan, in China's central Hubei province. STR/Agence France-Presse/Getty Images “I firmly believe that Evergrande’s spirit of never admitting defeat and becoming stronger with frustration is the source of our strength to overcome all difficulties!” That was the chairman of troubled property group China Evergrande, Xu Jiayin, who was channelling his inner Winston Churchill in what appeared to be a rally-the-troops letter to employees that leaked online Tuesday. The billionaire wished his colleagues a happy mid-autumn festival, thanking them for their hard work, especially those “still fighting on the front line of resuming work and production.” The letter was posted in its entirety by several Chinese media sites. Xu said that “through the joint efforts and hard work of leaders at all levels and all employees, Evergrande will surely walk out of the darkest moment as soon as possible,” and speed up its goal to resume production and complete construction of its buildings. But the reception to those words were not exactly on par with what Churchill got from those inspiring wartime speeches. “Dead Duck’s Mouth, white clothes salty rice,” responded Weibo user referring to a common Chinese proverb about someone being stubborn as a mule. User Xiao Xu said the “slogan is good, but the fastest runners are Xu Jiayin and Evergrande executive .”