Thu. Jan 20th, 2022

China Evergrande Group, the world’s most indebted real estate developer, flanked again with a formal default on Monday night as the end of a 30-day grace period on $ 82.5 million in debt repayments due in November approached .

Earlier Monday, the group’s shares tumbled in the first trade since its announcement on Friday that it would struggle to meet a $ 260 million guarantee obligation and that its chairman was summoned by regulators.

Evergrande’s Hong Kong traded shares fell 19.6 percent from their close on Friday to HK $ 1.81, an overall low.

The developer said on Friday night that he had received a claim for a $ 260 million guarantee that he had issued, but gave no further details. It was not immediately clear whether the warranty was previously disclosed by Evergrande or when payment was payable for it.

In its interim annual report released in August, Evergrande said it had issued financial guarantees on behalf of property buyers and business partners totaling Rmb557 billion ($ 87 billion).

Evergrande, whose debt crisis has begun to spiral out of control September, has at least four mortgage repayments totaling $ 610m due by the end of February. The two largest payments, $ 255 million and $ 235 million, are due on December 28 and January 24, respectively. a 30-day grace period on the $ 82.5 million in coupon payments would expire Monday.

Evergrande did not say in his Friday announcement what the $ 260 million guarantee was related to, but he warned that if it did not meet the guarantee, it could “lead to creditors demanding acceleration of repayment” of other debt.

In September, the Shenzhen-based developer was forced to restructure repayments to retail customers who bought the group’s high-yield investment products. It also offered to repay investors and suppliers with completed apartments rather than cash.

Evergrande later missed initial mortgage payment periods, but was able to meet its obligations in each case before the end of subsequent grace periods, avoiding a formal default.

Shortly after Evergrande’s statement on Friday, China’s central bank reiterated its earlier criticism of corporate governance by accusing it of “poor governance” and pursuing “blind expansion”.

In addition to summoning Evergrande chairman Hui Ka Yan on Friday, Guangdong provincial government has also sent a team to the group’s headquarters to oversee its finances. House fortune has dropped by more than 70 percent to $ 11 billion in the past year.

China’s regulators have sought to reassure local and international investors that they could contain the Evergrande outbreak. They said less than $ 100 billion of the group’s debt was owed to banks, with its loans “relatively spread” among creditors.

Property prices in many of China’s largest cities has flattened or fallen in recent months – a welcome development for officials now tasked with implementing President Xi Jinping’s new “common prosperity” policy agenda aimed at reducing social inequality.

But with China’s real estate sector estimated to account for as much as one-third of total economic output, there is growing concern that the world’s second-largest economy could grow by less than 5 percent next year.

Insistence on urban land plots has fallen sharply in recent months, threatening a critical source of revenue for local governments that are also struggling to finance growth-promoting infrastructure investment.

“The biggest growth headwind will be the property downturn,” said Larry Hu, China’s chief economist at Macquarie. “The tumbling real estate sector poses significant contagion risk to the Chinese economy.”

The Chinese Communist Party will hold its annual economic planning meeting over the next few weeks. Policymakers are expected to endorse some mitigation measures to promote growth moderately at the session, but otherwise will continue to use strict police leverage imposed on property developers last year.

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