Protests as Chinese property giant Evergrande faces 'tremendous pressure' over US$300b debt

Dozens of anxious investors protested outside the headquarters of troubled Chinese property giant Evergrande on Sept 14, 2021. PHOTO: AFP

BEIJING (AFP) - Dozens of anxious investors protested outside the headquarters of troubled Chinese property giant Evergrande on Tuesday (Sept 14), after the debt-laden firm conceded it was under "tremendous pressure" and may not be able to meet its repayments.

The Hong Kong-listed developer is sinking under a mountain of liabilities totalling more than US$300 billion (S$402.66 billion) after years of borrowing to fund rapid growth.

The group was downgraded by two credit rating agencies last week, while its shares tumbled below their 2009 listing price, with a barrage of bad headlines and speculation of its imminent collapse on Chinese social media.

An estimated 60 to 70 people gathered outside Evergrande's headquarters in the southern city of Shenzhen, jostling with police and demanding answers.

Some were contractors owed money, others anxious investors, according to AFP reporters at the scene.

"Our boss is owed over 20 million yuan (S$4 million), and many people here are owed even more," a man who gave only his surname Chen told AFP.

"We are definitely very anxious. There's no clear explanation right now... they should have paid the money when it was due."

Evergrande's plight has raised fears of a contagion across the debt-mired Chinese property sector - which accounts for more than a quarter of the world's second-largest economy - with a knock-on for banks and investors.

On Monday, the company insisted it will avoid bankruptcy.

But on Tuesday, it issued another statement to the Hong Kong stock exchange, saying it had hired financial advisers to explore "all feasible solutions" to ease its cash crunch.

The statement warned that there was no guarantee that Evergrande would meet its financial obligations.

The firm blamed "ongoing negative media reports" for damaging sales in the pivotal September period, "resulting in the continuous deterioration of cash collection by the Group which would in turn place tremendous pressure on... cash flow and liquidity".

Shares in the firm fell more than 11 per cent on Tuesday, and are down almost 80 per cent since the start of the year.

Biggest test

The firm has some 1.4 million properties that it has committed to complete - around 1.3 trillion yuan in pre-sale liabilities, as at the end of June, according to an estimate by Capital Economics.

"Evergrande's collapse would be the biggest test that China's financial system has faced in years," said Mr Mark Williams, chief Asia economist at Capital Economics.

Yet "markets don't seem concerned about the potential for financial contagion at the moment", he said, adding "that would change in the event of large-scale default", which would likely prod the central bank to step in and buttress the teetering developer.

"The most likely endgame is now a managed restructuring in which other developers take over Evergrande's uncompleted projects in exchange for a share of its land bank."

The pictures of angry investors outside the firm's headquarters could also cause alarm in Beijing, where leaders are keen to keep a lid on any form of social unrest.

Some creditors have demanded immediate payback of loans, Bloomberg News reported earlier this month.

Evergrande has already sold stakes in some of its wide-ranging assets and offered steep discounts to offload apartments, but still reported a 29 per cent slide in profit for the first half of the year.

It is also struggling to sell its Hong Kong headquarters, even at a loss.

The developer was founded in 1996 by Mr Xu Jiayin, who went on to become China's richest man during the country's property boom of the 1990s.

He poured money into mass developments in new cities, raising US$9 billion in Evergrande's 2009 IPO in Hong Kong.

A year later, Mr Xu bought a struggling football team and renamed it Guangzhou Evergrande, lavishing millions of dollars on salaries for its stars.

Evergrande started to falter under the new "three red lines" imposed on developers in a state crackdown in August 2020, forcing the group to offload properties at increasingly steep discounts.

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