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Friday, March 31, 2023

Market watchers warn of another debt crisis in China’s real estate giant Evergrande

After the company disclosed the severity of its financial problems, the rating agency further downgraded the rating of the Chinese real estate giant Evergrande on the grounds of default risk. Experts warn that this will have an impact on China’s broader real estate industry and banks.

The rating agency Standard & Poor’s further downgraded Evergrande’s rating from “CCC” to “CC”. The outlook on September 15 was negative, citing reduced liquidity and the possibility of default risks including debt restructuring.

Two days ago, Evergrande issued a statement saying that more and more bankruptcy allegations were “completely untrue”, although “it is indeed experiencing unprecedented difficulties.”

Another rating agency Fitch issued a comment on September 14 that the company’s default may expose many industries to higher credit risks. However, it stated that the overall impact on the banking industry is manageable. On September 7, Fitch downgraded the company’s rating from “CCC+” to “CC”.

On September 14, the debt-laden real estate group admitted in a statement to the Hong Kong Stock Exchange that its cash flow was under “enormous pressure.”

It was unable to sell its properties and assets as soon as possible, including part of its shares in its Hong Kong office buildings and its electric vehicles and property services businesses, to repay its heavy debts.

According to its draft report for the first half of the year, Evergrande reported RMB 1.97 trillion (US$305 billion) in liabilities at the end of June. This includes 572 billion yuan (88.8 billion U.S. dollars) of bank loans and other borrowings from the bank market.

The real estate giant accused “continuous negative media coverage” of disrupting sales in September. From June to August, Evergrande’s sales have been halved, which “put a huge pressure on the group’s cash flow and liquidity”.

The company disclosed that its two subsidiaries failed to provide guarantees for wealth management products worth 934 million yuan (US$145 million) issued by third parties.

Domino effect

Xie Tian, ​​a professor at the Aiken School of Business at the University of South Carolina, said that the debt crisis and the suspension of repayment to investors indicate that Evergrande is facing default and bankruptcy.

“[Banks] If it defaults and has the right to auction its assets according to the contract, then Evergrande and its subsidiaries will go bankrupt and sell the property,” Xie said.

He told The Epoch Times that the bankruptcy of Evergrande will have a knock-on effect on many banks and developers. Xie said that this could pose a widespread threat to China’s debt-laden real estate industry and even the financial system.

He added that debt is now causing difficulties for the Chinese regime. Even if the authorities rescued one of China’s largest real estate developers, Evergrande’s troubles could have a domino effect on other sectors of the Chinese economy.

When asked about Evergrande’s liquidity crisis at a press conference on Wednesday, the National Bureau of Statistics of China said that the impact on China’s real estate industry is “under further observation.”

Complaints are flooding China’s social media platforms because home buyers worry that their projects may still be unfinished, resulting in them not having prepaid new homes. Investors also called for the withdrawal of funds.

Since September 12, angry investors have been protesting at the company’s Shenzhen headquarters, demanding repayment of loans and financial products. Although security and police dispersed the crowd, about 40 protesters showed up at the entrance on Wednesday.

Reuters and Roja contributed to this report.


This News Originally From – The Epoch Times

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