Evergrande Moves Toward Restructuring; Chinese government seeks to contain risks

The China Evergrande group created a risk management committee on Monday as the cash-strapped property developer approaches a debt restructuring, which has been looming for months in global markets and in the world’s second-largest economy. .

The real estate giant, which is grappling with more than $ 300 billion in liabilities and at risk of the largest default in Chinese history, said on Monday that the committee included officials from state entities and would play an important role in “mitigate and eliminate future risks” of the group.

On Friday, Evergrande said it would seek to restructure its overseas debt after acknowledging that it may no longer be able to meet its financial obligations, prompting the provincial government of the southern province of Guangzhou, where it is based, to step in to help. to manage the consequences.

“Evergrande has been trying to sell assets to pay off debt, but Friday’s statement basically says it will ‘give in’ and needs help.“Said Conita Hung, director of investment strategy at Tiger Faith Asset Management. “This sends a very bad signal“, Held.

Evergrande shares fell to a record low on Monday, sinking once again now that it is on the brink of default with the end of a 30-day grace period on installment payments totaling $ 82.5 million.

At the end of Asian trading hours, two bondholders said they had not yet received payments.

Evergrande, which has made last-minute coupon payments in the past, declined to comment.

If Evergrande were to go into formal default, it would set off a wave of cross-defaults affecting real estate and others, potentially shaking global investor confidence, already shaken by the emergence of the omicron variant of the coronavirus.

“Until there is a new announcement, everyone is waiting to see if this time it will be the first real trigger event. This also runs counter to the feverish stock market anticipated for this week, “said Karl Clowry, partner at Addleshaw Goddard in London.

The Chinese authorities have stepped up their efforts to assure markets that Evergrande’s problems can be contained.

In the latest event, China’s central bank said on Monday it would cut the amount of cash banks must keep in reserve, its second such move this year, freeing up $ 188 billion in long-term liquidity to fuel growth. economic, which is slowing down.

Evergrande’s shares fell 20% on Monday and closed at an all-time low of HK $ 1.81, after it said Friday night that creditors had demanded $ 260 million and that it could not guarantee funds for payment. of coupons, which led the authorities to summon their president.

Analysts said concerted efforts by authorities indicated that Evergrande has likely already entered a process of restructuring its managed debt assets.

Morgan Stanley commented that said process would imply coordination between the authorities to maintain the operations of the real estate projects and the negotiation with creditors in progress, in order to guarantee financing for the completion of the procedure.