Evergrande supplier threatens lawsuit over late payment

With more than $407 billion of liabilities, Evergrande’s fate has broad implications for China’s financial system. PHOTO: REUTERS

SHANGHAI (REUTERS, BLOOMBERG) - Debt-laden developer China Evergrande Group has failed to pay some overdue bills, piping supplier Yonggao said on Wednesday (Aug 25), in the latest sign of a cash crunch at the teetering builder.

Financial markets are worried that the size of Evergrande's debts present a systemic risk were it to fail and the firm's executives last week were issued a rare warning from regulators to get their house in order. With more than US$300 billion (S$407 billion) of liabilities, the conglomerate's fate has broad implications for China's financial system.

Yonggao now joins a handful of suppliers to threaten or launch legal action over missed or late payments.

In an exchange filing the Shenzhen-listed pipe-producer said it is owed 478 million yuan (S$100 million) in commercial bills, of which 195 million yuan is overdue, that it could sue the developer and that since May it had stopped deliveries.

Evergrande had no immediate response. It had pledged last Friday to do everything it can to resolve its debt issues, but markets appear to remain unconvinced and nervous.

Shares of Evergrande fell as much as 2.2 per cent in Hong Kong trading on Wednesday, taking this year's decline to 70 per cent.

The world's most indebted developer has more than 240 billion yuan of bills and trade payables from contractors to settle over the next 12 months, according to ratings agency S&P Global.

Construction work has been halted on two of its projects in the south-western Chinese city of Kunming, one of them for overdue payments worth more than 210 million yuan, state media China National Radio said earlier this month.

In other news, Evergrande is seeking to sell a residential project in Hong Kong, people familiar with the matter said, as it ramps up divestments to avert a cash crunch.

The developer is looking to sell the site in the Yuen Long area of the New Territories for HK$8 billion (S$1.4 billion), one of the people said, asking not to be identified because the matter is confidential. That is lower than the HK$8.9 billion it paid to acquire the project.

"Evergrande may accelerate asset sales after last week's rebuke and instruction to resolve its debt problems from China's central bank and financial regulator," Bloomberg Intelligence analysts including Patrick Wong and Lisa Zhou wrote in a note.

Evergrande acquired the Yuen Long project from Henderson Land Development, firstly by purchasing undeveloped farmland for HK$4.7 billion in mid-2019. Earlier this year it paid a HK$4.2 billion premium to convert it into a residential development, according to the Hong Kong Economic Times.

Evergrande and its electric vehicle and property services units tumbled earlier this week after Sing Tao Daily reported that the company may sell its Hong Kong headquarters building for HK$10.5 billion, less than the acquisition cost of HK$12.5 billion.

Evergrande said earlier this month it is in discussions to sell stakes in its electric vehicle and property services units. Last week, it said preliminary talks between China Evergrande New Energy Vehicle Group and Xiaomi to introduce strategic shareholders had ended.

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