Evergrande’s liquidity crisis was just the beginning of the pain. …reports Asian Lite News
Property developer Evergrande’s US bankruptcy serves as a cautionary tale about the growth-at-all-costs model that underpinned China’s spectacular growth over the past 30 years, the media reported.
For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete, CNN reported.
But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding a financial risks within the world’s second-largest economy, CNN reported.
Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to shore up cash and demand for housing has fallen.
Now, investors around the world are watching nervously as Country Garden which employs some 300,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures”, CNN reported.
The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week, CNN reported.
Country Garden has until early September to make the payments it missed.
It’s hard to overstate the importance of the property market China. The industry accounts for as much as 30 per cent of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.
But nearly three years of “zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values, CNN reported.
A sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding financial risks within the world’s second-largest economy.
The filing for bankruptcy by Evergrande, Chinese real estate giant signals the beginning of Beijing’s real estate crisis, CNN reported on Friday.
It serves as a cautionary tale about the “growth-at-all-costs” model that underpinned China’s spectacular growth over the past 30 years.
For decades, Evergrande, once one of China’s most successful real estate developers, gobbled up debt as China’s economy exploded. Demand for housing was so strong, homebuilders often pre-sold apartment units to buyers before construction was complete, CNN reported.
But a sudden shift in policy by China’s leaders two years ago has left the country’s property developers scrambling for cash, compounding financial risks within the world’s second-largest economy.
As per CNN, the story of Evergrande’s downfall began in 2021, when the central government moved to curb excessive borrowing to try to slow the rise in home prices, effectively cutting off a major source of funding for property developers.
Evergrande, which had 300 billion USD in liabilities, couldn’t shore up cash fast enough to make its debt payments.
It defaulted in December 2021, triggering a market panic. A wave of defaults followed, and China’s vast real estate market has yet to recover. The building was suspended on dozens of projects, leaving many “pre-sale” buyers left with no new home and a hefty debt burden, according to CNN.
The steps that will be taken by Beijing to restructure billions of dollars in offshore debts have massive implications for China’s financial system.
Earlier on Thursday, Evergrande filed for Chapter 15 bankruptcy, which is a way for foreign companies to use US bankruptcy law to restructure debt. The process will take time, as Evergrande has roughly 19 billion USD in offshore debts.
Evergrande’s liquidity crisis was just the beginning of the pain. Other large builders in China have since defaulted as they struggle to shore up cash and demand for housing has fallen, CNN reported.
Notably, investors around the world are watching the development cautiously as Country Garden, which employs some 3,00,000 people, missed two payments on its multibillion-dollar debt and said it was considering “various debt management measures.”
The cash-strapped developer’s debt is now seen as a “very high risk” asset, according to Moody’s, which downgraded its rating on Country Garden last week, CNN reported.
Country Garden has until early September to make the payments it missed.
It’s hard to overstate the importance of the property market in China. The industry accounts for as much as 30 per cent of the country’s economic activity, and more than two-thirds of household wealth is tied up in real estate.
Xi Jinping delivers a speech at a ceremony marking the 100th anniversary of the founding of the CPC in Beijing, July 1, 2021. (Xinhua/Ju Peng/IANS)
But nearly three years of “Zero Covid” restrictions sapped China’s economic growth, and consumers have been reluctant to buy new homes in the face of higher unemployment and falling property values, as per CNN.
Notably, China’s economic engines have been sputtering after a brief surge in activity earlier this year.
Consumer prices last month fell for the first time in more than two years; youth unemployment has been rising so fast, Chinese authorities simply didn’t release the July data. Retail sales, export demand and factory production are all down as well, CNN reported.
While Beijing has made some efforts to help jumpstart demand for housing and free up cash for developers, the days of big, state-funded bailouts for bloated industries appear to be over. It also seems unlikely that China will bail these companies out.
“We must maintain historic patience and insist on making steady, step-by-step progress,” CNN quoted President Xi Jinping as saying recently. (ANI)
Evergrande filed for Chapter 15 bankruptcy protection, which allows a US bankruptcy court to step in when an involvency case involves another country….reports Asian Lite News
China’s Evergrande Group — once the country’s second-largest property developer — on Thursday submitted a bankruptcy petition in New York, CNN reported.
The beleaguered firm, which faced significant debt and defaulted on its financial obligations in 2021, sparking a massive property crisis in the Chinese economy, is still grappling with the repercussions.
Evergrande filed for Chapter 15 bankruptcy protection, which allows a US bankruptcy court to step in when an involvency case involves another country. Chapter 15 bankruptcy is intended to help promote cooperation between US courts, debtors, and other countries’ courts involved in cross-border bankruptcy proceedings, as per CNN.
According to CNN, Evergrande did not immediately respond to its request for comment.
Pic credits IANS
Meanwhile, the property developer has struggled to pay off its loans, which reached 2.437 trillion yuan (340 Billion USD) by the end of last year — or roughly 2 per cent of China’s entire gross domestic product (GDP).
The company also reported in a stock market filing last month that it had lost 81 Billion USD of shareholder money in 2021 and 2022.
Evergrande’s 2021 default set off a larger crisis in China’s property market, damaging homeowners and the broader financial system in the country. Since Evergrande’s collapse, several other major developers in China, including Kasia, Fantasia, and Shimao Group, have defaulted on their debts. Most recently, another Chinese real estate giant, Country Garden, warned that it would “consider adopting various debt management measures” — fuelling speculation that the company may be preparing to restructure its debt as it struggles to raise cash, CNN reported.
Earlier this year, Evergrande unveiled its long-awaited debt restructuring plan, which was China’s largest on record. The company said it had reached “binding agreements” with its international bondholders on the key terms of the plan.
“The proposed restructuring will alleviate the company’s pressure of offshore indebtedness and facilitate the company’s efforts to resume operations and resolve issues on shore,” CNN quoted Evergrande as saying. (ANI)
Experts believe that a high-risk business model and Beijing’s actions to curb the boom in the Chinese housing market brought the company into crisis….reports Asian Lite News
Trading in the shares of China’s major property developer, Evergrande Group, was suspended on the Hong Kong stock exchange on Monday.
The suspension is the second one this year and comes ahead of the Wednesday USD 2 billion repayment obligation.
Trading in Evergrande shares (stock code 03333) is being suspended starting 9:00 a.m. on March 21 and all structured products relating to the company will also be halted from trading at the same time, Sputnik reported citing a notice to the stock exchange. So far, no specific reason was given for the decision. Last year, Evergrande was on the brink of default after years of growth and active borrowing.
Experts believe that a high-risk business model and Beijing’s actions to curb the boom in the Chinese housing market brought the company into crisis.
The developer is reeling under more than USD 300 billion of total liabilities, including about USD 19 billion in offshore bonds held by international asset managers and private banks on behalf of their clients, reported CNN.
Earlier, government officials were sent in to the company to oversee a restructuring, but there’s little clarity about what comes next. Evergrande has appealed for more time, but some lenders appear unwilling to wait. (ANI)
It comes a day after shares in one of China’s largest developers, Shimao Group, fell 20 per cent on concerns that it was offloading assets to manage its spiralling debts….reports Asian Lite News
Chinas giant housing market continued to decline in the past month with another major developer showing signs of financial distress, as state-owned enterprises began carving up the carcass of the failing property giant Evergrande, The Guardian reported.
House prices, sales, investment and construction data released on Wednesday showed renewed signs of crisis in the market, which accounts up to 30 per cent of the country’s output and which appears certain to drag on the world’s second biggest economy, the report said.
It comes a day after shares in one of China’s largest developers, Shimao Group, fell 20 per cent on concerns that it was offloading assets to manage its spiralling debts.
“Cities of all classes are under pressure,” said Yan Yuejin, Director of Shanghai-based E-house China Research and Development Institution, adding: “The current scale of market supply is large and the demand is weak. The key is to accelerate inventory de-stocking to stabilise home prices.”
However, more data released on Wednesday showed that weak demand for houses was in line with other metrics across the whole Chinese economy, the report added.
Real retail sales increased by just 0.5 per cent on an annual basis – down from 1.9 per cent in October – to give the weakest outcome since August 2020, and far below the pre-Covid levels as consumers remained cautious and Covid outbreaks continued to cause snap lockdowns, the report said.
A staff worker does a survey at the construction site of high-standard farmland in Natang village of Qumig in Xigaze, southwest China's Tibet Autonomous Region, March 1, 2020. The local government promotes the construction of high-standard farmland by leveling and connecting scattered plots and building supporting irrigation facilities. (Xinhua/Zhang Rufeng/IANS)
Fitch Ratings had declared on Thursday that the embattled property developer has entered “restricted default”, reflecting the company’s inability to pay overdue interest earlier this week on two dollar bonds., reports Asian Lite News
Beijing is intervening to prevent a disorderly collapse of indebted real estate group Evergrande, which could wreak havoc on the world’s second biggest economy, CNN reported.
Fitch Ratings had declared on Thursday that the embattled property developer has entered “restricted default”, reflecting the company’s inability to pay overdue interest earlier this week on two dollar bonds. The payments were due a month ago, and the grace periods lapsed on Monday.
Evergrande’s apparent failure to pay that interest has revived fears about the future of the company, which is reeling under more than $300 billion of total liabilities, the report said.
Evergrande is massive — it has about 200,000 employees, raked in more than $110 billion in sales last year, and owns more than 1,300 developments in more than 280 cities — the report said.
(Image: IANS)
Analysts have long been concerned that a collapse could trigger wider risks for China’s property market, hurting homeowners and the broader financial system. Real estate and related industries account for as much as 30 per cent of China’s GDP, the report added.
Chinese authorities have so far downplayed the prospect of spillover risks.
“China’s leadership is attempting to play it cool, but the circumstances surrounding Evergrande’s downward spiral raises serious questions about [Chinese President] Xi Jinping’s stewardship over China’s rapidly cooling economy,” said Craig Singleton, an adjunct fellow in the China Programme at the Foundation for Defense of Democracies, a research institute based in Washington D.C, the report said.
There’s already plenty of evidence that Beijing is taking a leading role in guiding Evergrande through a restructuring of its debt and sprawling business operations.
The local government in Guangdong province, where Evergrande is based, had said late last week that it would send officials to the firm to oversee risk management, strengthen internal controls and maintain normal operations, the report said.
