Cash-strapped developer warns of cross-default risk

HONG KONG • Cash-strapped China Evergrande Group warned yesterday of a risk of cross-default as property sales continued to plunge, intensifying pressure on the developer, which has swiftly become the country's biggest corporate headache.

The group has been scrambling to raise funds that it needs to pay its many lenders and suppliers, with regulators and financial markets worried that any crisis could ripple through China's banking system.

In the latest development, Evergrande said two of its subsidiaries had failed to discharge guarantee obligations for 934 million yuan (S$195 million) worth of wealth management products issued by third parties.

That could "lead to cross-default", which "would have a material adverse effect on the group's business, prospects, financial condition and results of operations", it said in a statement to the Stock Exchange of Hong Kong.

Its shares slumped in Hong Kong yesterday and the Shanghai bourse halted trading of the firm's listed bonds amid wild swings in its price.

Evergrande added that it has engaged financial advisers, signalling a speed-up of any restructuring plans. Houlihan Lokey (China) and Admiralty Harbour Capital will assess the group's capital structure, evaluate its liquidity, explore solutions to ease the current liquidity issue and reach an optimal solution for all stakeholders as soon as possible.

The group is also talking to potential investors to sell some of its assets, but it has made no "material progress" so far, it added.

Evergrande said earlier this month that it was in talks to sell certain assets, including stakes in its Hong Kong-listed units Evergrande New Energy Vehicle and Evergrande Property Services.

Pressure on Evergrande - which has 1.97 trillion yuan in liabilities - has intensified in recent weeks as fears over its ability to repay investors trigger mounting protests that are certain to rattle Beijing.

It blamed "ongoing negative media reports" for dampening investor confidence, resulting in a further decline in sales this month.

Its shares fell nearly 9 per cent early yesterday to their lowest since July 2015, on course for the second session of decline. Stock of its e-vehicle group plunged as much as 19.8 per cent, while shares of its property management unit dropped 5.9 per cent.

Evergrande's June 2025 dollar bonds fell more than five US cents yesterday morning to under 28 US cents, according to financial data provider Duration Finance.

Moves in the company's onshore bonds, which are highly illiquid, were more erratic, with one Shanghai exchange-traded bond surging nearly 23 per cent and triggering a trading halt, while another bond in Shenzhen dived almost 12 per cent.

Evergrande said late on Monday that online speculation about its bankruptcy and restructuring was "totally untrue". In a statement, it said it was facing "unprecedented difficulties" but would do everything possible to resume work and protect the legitimate rights and interests of its customers.

The company's debt has been repeatedly downgraded by ratings agencies targeting the developer over its struggles to restructure huge debts.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 15, 2021, with the headline 'Cash-strapped developer warns of cross-default risk'. Subscribe