(Bloomberg) – At least two of the largest non-bank creditors in the China Evergrande group have demanded immediate repayment of some loans, people familiar with the matter say, escalating liquidity strains for the world’s most indebted developer.
Both creditors are trust companies, which pool money from high net worth retail investors and are a major source of funding for Evergrande and other Chinese developers.
Trusts have sent redemption notices to Evergrande over the past two months after worrying about the financial health of the real estate giant, people said, asking not to be identified as the details are private. Trust loans often include conditions that allow creditors to demand early repayment if certain conditions are met, such as sales targets, credit downgrades, or lawsuits.
One of the trusts has so far only received a small portion of the money owed by Evergrande, one of the people said. The size of the loans involved could not be learned immediately.
It’s the latest sign that Evergrande is struggling to honor $ 305 billion in debt owed to banks, shadow lenders, vendors, and home buyers. The developer’s bonds have fallen to levels that suggest investors are bracing for default, and its top three listed entities have lost more than $ 110 billion in combined market value since mid-February. While Chinese regulators have urged the company to resolve its debt problems, the government has so far been silent on its financial support.
Evergrande’s 8.75% dollar bond due 2025 fell 1.8 cents on the dollar to 25.7 cents, according to data compiled by Bloomberg, set for a new record. In the onshore market, where low liquidity can sometimes lead to disproportionate price swings, a local bond due 2022 issued by Evergrande’s real estate unit was halted for half an hour on Friday morning after its price fell by 23%. The rating then ended down 5.9%. Evergrande shares fell 4.2% in Hong Kong to the lowest level since July 2015. The developer did not immediately respond to a request for comment.
Trusts have been a major source of funding for Evergrande, accounting for around 40% of borrowing at the end of 2019, the last year the company disclosed the numbers.
While developer trust loans have slowed over the past year, Evergrande has around 46 billion yuan ($ 7.1 billion) of such loans maturing in 2021, according to data collected by Yongyi Trust. Research. About 11 billion yuan is due in the fourth quarter.
A non-repayment could prompt at least one trust to recall all of its loans, a person familiar with the matter said, although it is not known how Evergrande would react. Legal cases against the company and its subsidiaries are centralized in Guangzhou, a city in the home province of Evergrande, Guangdong, making it more difficult for creditors to freeze their assets or pursue repayment through the intermediary. other local courts.
Evergrande warned this week that he could default on his loans if his efforts to raise funds were insufficient. Despite selling stakes in valuable assets and offering big discounts to offload apartments, the developer saw a 29% drop in profits in the first half of the year. Its real estate and electric vehicle units posted losses, while some vendors suspended work on projects due to unpaid bills.
“The group will do everything possible to continue operations and will endeavor to deliver the properties to customers as planned,” said Evergrande.
The developer has also fallen behind on some smaller shadow loans. A Jinan subsidiary of Evergrande’s Hengda Real Estate unit defaulted on two leasing loans amounting to 37.7 million yuan, according to people familiar with the matter. The loans were due on Aug. 28 and 31, and the borrower did not provide a repayment plan, people said.
The recent crisis has caught the government’s attention. Beijing has asked authorities in Guangdong to come up with a plan to deal with the developer’s debt, people familiar with the matter said last month. The provincial government coordinates with banks, other creditors and potential buyers of Evergrande’s assets.
The promoter’s main banks met this week to discuss the possibility of setting up a creditors management committee, a person familiar with the matter said, without any decision having been taken. At China Fortune Land Development, another indebted developer, a creditors committee formed with the support of regulators and local governments is working with the company on a debt resolution plan that would avoid judicial restructuring.
What Bloomberg Intelligence Says:
“Its projects worth 1,200 billion yuan under development could affect more than 1.6 million buyers or families, based on a standard unit of 90 square meters at 8,000 yuan per m² . The government may have to step in if social problems spread. “
Daniel Fan, analyst
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Bloomberg reported that several major banks have decided not to renew loans to Evergrande which are due this year. Others have agreed to grant the developer extensions on certain project loans. Banks are moving cautiously in part because they risk writing down their balance sheets if they cut lending too sharply.
Evergrande objected to the idea of banks denying him loans, saying his borrowing declined after he was able to raise more money through the sale of properties. In addition to the loans, the developer has also borrowed nearly $ 28 billion from bondholders around the world and received down payments on unfinished properties from more than 1.5 million buyers.
In an effort to appease customers, Evergrande pledged to carry out its housing projects on Wednesday, with billionaire founder Hui Ka Yan describing the directive as a “military order.”
(Updated market prices in the sixth paragraph.)
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