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China's Evergrande downgraded by Fitch
01:41 - Source: CNNBusiness
Hong Kong CNN Business —
China’s embattled property giant Evergrande has failed to deliver a preliminary debt restructuring plan it had promised by July 31, leading to further concerns about the future of the world’s most indebted developer.
The real estate company’s failure to meet its self-imposed deadline comes at a time when China’s entire property sector is dealing with a growing mortgage boycott and slumping housing sales.
According to an exchange filing on Friday, Evergrande offered instead some details on ‘preliminary restructuring principles’ for its offshore debt, and said it aims to announce “a specific offshore restructuring plan within 2022.”
Evergrande, China’s most indebted developer with $300 billion in liabilities, has been at the heart of the country’s real estate troubles since last year. It defaulted on its US dollar bonds in December after scrambling for months to raise cash to repay creditors, suppliers and investors.
To contain the fallout, the Chinese government has intervened to take a leading role in guiding the company through a restructuring of its debt and sprawling business operations.
In Friday’s filing, Evergrande said it has made “positive progress” in its offshore restructuring process, but added that it’s still working with creditors and advisers on conducting a due diligence of the company.
“Given the size and complexity of the Group and the dynamics the Group finds itself in, the due diligence process remains ongoing,” it said, adding that the work might be completed in the “near future.”
The lack of a concrete proposal highlights the uncertainties surrounding Evergrande’s opaque restructuring of its huge debt and sprawling business operations at a delicate time for China’s property sector and economy.
International creditors had complained earlier this year that they had been left completely in the dark about the companies intentions.
After creditors demanded updates and threatened to take legal actions, Evergrande pledged in January that it would release “a preliminary restructuring proposal” within six months. In June, it assured investors that it was on track to deliver the plan by the end of July.
The development comes at a difficult time for China’s property sector, which has been struggling with a steep fall in home prices, weakening buyer demand, and a series of debt defaults by real estate firms.
China’s economy has also slowed dramatically after strict Covid lockdowns dampened demand and disrupted industrial activities. Gross domestic product expanded 0.4% in the second quarter, the lowest growth rate since early in the pandemic. Analysts are worried that the government’s 5.5% annual growth target might be out of reach.
Why is Evergrande important?
Evergrande is massive — it has about 200,000 employees, raked in more than $110 billion in sales in 2020, and owns more than 1,300 developments in more than 280 cities. Many of its property projects have been delayed since last year because of the company’s liquidity issues.
Analysts have long been concerned that a collapse of Evergrande could trigger wider risks for China’s property market, hurting homeowners and the broader financial system. Real estate and related industries account for as much as 30% of GDP.
Since Evergrande’s default, several other major developers, including Kaisa, Fantasia, and Shanghai-based Shimao Group, have also sought protection from creditors.
In recent weeks, the real estate crisis has escalated further. Thousands of angry homebuyers who had previously paid down payments for unfinished projects threatened to stop paying mortgages if construction is not completed in time. Some of them have staged protests in central Wuhan city, pressuring local government and banks to help push developers deliver their prepaid homes.
“The mortgage boycotts are a double threat to developers and to the housing market,” said analysts at Capital Economics in a report late last month.
They have drawn attention to the problem of cash-strapped developers being unable to complete properties that they have already sold, which is “putting off new homebuyers.” The boycotts have also made banks more cautious about issuing mortgages, which could dent property sales further, they added.
In a report last week, S&P Global Ratings estimated China’s property sales could drop by a third this year because of mortgage strikes, as people believe developers won’t be able to complete presold units in time— the most common way they sell homes in the country.
“Without sales, many more developers will collapse, which is both a financial and an economic threat,” said Capital Economics analysts.
I'm an expert in financial and economic matters, particularly in the field of corporate debt restructuring and the real estate industry. I've closely followed global financial developments, and I can provide valuable insights into the situation involving China's Evergrande Group and its impact on the country's property sector and economy.
In the recent CNN article, it is reported that China's Evergrande, one of the world's most indebted developers, has failed to deliver a preliminary debt restructuring plan by its self-imposed deadline of July 31. This failure has raised concerns about the future of the company and the broader real estate market. Here's a breakdown of the key concepts and information mentioned in the article:
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Evergrande's Debt Crisis: Evergrande is facing a severe debt crisis, with approximately $300 billion in liabilities. The company's financial troubles began to escalate last year when it defaulted on its US dollar bonds in December.
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Government Intervention: To mitigate the crisis's fallout, the Chinese government has stepped in and is actively guiding Evergrande through a restructuring process for its debt and sprawling business operations.
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Lack of Concrete Proposal: The article highlights the uncertainty surrounding Evergrande's restructuring efforts, with a lack of a concrete proposal for addressing its massive debt and business operations. This lack of clarity has raised concerns among international creditors.
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Property Market Challenges: China's property sector is facing challenges such as falling home prices, weakening buyer demand, and debt defaults by other real estate firms. These challenges have been exacerbated by the COVID-19 pandemic.
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Economic Impact: The broader economic impact of Evergrande's crisis is significant, as the company employs around 200,000 people, and real estate and related industries contribute up to 30% of China's GDP. Analysts are concerned that a collapse of Evergrande could have widespread repercussions.
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Mortgage Boycotts: Homebuyers who had paid down payments for unfinished projects are threatening to stop paying mortgages if construction is not completed on time. These mortgage boycotts have added pressure on developers and local governments.
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Bank Caution: The mortgage boycotts have made banks more cautious about issuing mortgages, which could further dent property sales and negatively impact the real estate market.
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Sales Decline: S&P Global Ratings estimates that China's property sales could decline by a third this year due to mortgage strikes and concerns that developers won't complete presold units on time.
In summary, Evergrande's debt crisis is a complex issue with significant implications for China's property market and economy. The lack of a clear restructuring plan, coupled with challenges in the property sector and broader economic slowdown, has created a precarious situation that experts and analysts are closely monitoring.
