China on high alert after Evergrande reshuffle

RESTRUCTURING:
China Evergrande Group’s CEO and CFO have been forced to step down as the beleaguered developer tries to hammer out a deal to resolve a $300 billion liability

Time is running out for the world’s most indebted developer, whose liquidity problems have sparked a wider debt crisis in China’s property sector that has swallowed up more homebuilders, threatened banks and posed mounting challenges to the president. Chinese Xi Jinping (習近平).

China Evergrande Group (恆大集團), once the country’s largest real estate company, previously said it was on track to deliver a preliminary restructuring plan by the end of this month. That leaves the automaker just days away with around $300 billion in liabilities, just as a shake-up brings new uncertainty.

The group said on Friday that chief executive Xia Haijun (夏海鈞) was forced to resign amid a company probe into how 13.4 billion yuan ($2 billion) in deposits were taken. used as collateral for third parties to obtain bank loans, which some borrowers then failed to repay. CFO Pan Darong (潘大榮) was also forced to resign.

Evergrande’s chief executive, Siu Shawn (肖恩), is to take over as CEO. Siu said the company has reached “basic consensus” on debt restructuring principles with several major global creditors, according to a report by the 21st Century Business Herald on Friday.

The company shook markets late last year when it defaulted on dollar bond payments after liquidity crises that began in 2020. Meanwhile, Evergrande’s creditors found themselves with few detailed indications of how much they could recover, in what would be one of the largest in the country. – never debt restructuring.

As risks mount, the government has stepped up support for the sector, months ahead of a once-every-five-year Chinese Communist Party meeting where Xi is expected to seek a third term.

What began as a housing market downturn triggered by a government crackdown on excessive developer borrowing and property speculation in 2020 has snowballed in recent weeks into unprecedented loan boycotts by buyers and angry suppliers. Cash shortages have prompted developers to stall many projects across the country and leave fees unpaid. In an example of how it all cascades, a group of small businesses and suppliers who said they would stop paying their own debts blamed Evergrande for letting them out of pocket.

Evergrande urged patience and asked investors not to take aggressive action on a call in March, but the unresolved issues have only grown since then. In addition to the challenges posed by unfinished housing projects and delayed financial results, the company also recently suffered its first refusal from local creditors to extend bond payment – ​​a development that could lead to a historic onshore default. .

Another focus is how the authorities will balance any state intervention with longstanding efforts to wean the country’s credit markets from assumptions that borrowers would be bailed out.

The extent of any government involvement is an open question after Evergrande created a seven-member risk management committee last year, including senior executives from state-owned bad debt manager China Cinda Asset. Management Co (信達資產管理) and public companies in his home province of Guangdong.

Meanwhile, China’s top regulators have repeatedly said in public remarks that debt risks at Evergrande and other troubled property companies should be addressed in a “market-oriented manner.” .

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