China says non-payment of Evergrande will have no impact on the banking system

The China Bank and Insurance Regulatory Commission (CBIRC) said today that the possible non-payment of US $ 260 million of a guarantee by the indebted real estate giant Evergrande “will not have a negative impact” on the banking and insurance sectors.

The CBIRC was one of the bodies that spoke out shortly after the company announced that it had received a lawsuit to face the aforementioned payment at a time when “there is no guarantee” that it has sufficient funds to meet its obligations financial institutions in the face of a liquidity crisis caused in part by the restrictions imposed by Beijing on access to bank financing for the most indebted developers.

After weeks dodging them on the horn, both the CBIRC and some media such as the economic news portal Caixin spoke tonight of “defaults”, although Evergrande avoids mentioning that term in the statement it sent to the Hong Kong Stock Exchange.

The non-payment, Caixin points out, could generate a situation of ‘cross-default’ (“crossed insolvency”), in which the default with a single creditor is enough for others to claim the repayment of their loans.

That media recalls that Evergrande’s ‘offshore’ debt is more than US $ 19,000 million.

The CBIRC followed up on this information by ensuring that the financial debts of Evergrande They account for “about a third” of its total liabilities -more than US $ 300,000 million-, that it has a “diversified creditor structure” and that the investment of the conglomerate in financial institutions is “quite limited.”

The agency assures that “there will be no changes” in the position of regulators when it comes to “protecting the legitimate rights of consumers, investors and businesses.”

Beijing blames Evergrande

Another of the institutions that spoke out tonight was the Chinese central bank, the People’s Bank of China (BPC), which blamed Evergrande for generating its own problems due to “mismanagement and unbridled expansion.”

“The risks caused in the short term by a given real estate will not undermine the fundraising function of the market in the medium and long term,” continues the BPC, which required companies that issue offshore bonds to “strictly comply with the discipline of the market, adequately solve their debt problems and meet their financial obligations ”.

For its part, the securities market regulator, the CSRC, wanted to alleviate fears about the situation in the real estate sector – Evergrande is not the only developer in financial distress – by ensuring that “it continues with its healthy development” and that “the majority “Of companies” operate regularly.

The CSRC stated that the Chinese stock markets remain “stable, resilient and active” and that the contagion risk posed by the Evergrande situation is “controllable”.

Both the BPC and the CBIRC also made mention of the decision of the authorities of the southeastern province of Canton, where Evergrande has its headquarters, to intervene -as they detailed, at the request of the founder of the group himself, who was summoned this very night to an urgent meeting – and assign a “working group” to the company to “resolve risks effectively”.

Specifically, the central bank showed its “support” for the measure and assured that it will work together with other government agencies and local authorities to “protect the legitimate rights of home buyers.”

Since the Evergrande crisis broke out, the Chinese government’s stated goal has been to ensure that both the company and other struggling developers finish building the homes already sold off plan, which in Evergrande’s case would amount to about 1.3 million.

In this regard, the CBIRC announced that it will “encourage” banks to “offer financial services” to real estate and construction companies following “principles of prudence”.