Enlarge image
Evergrande unfinished residential complex in Luoyang in September (Henan Province)
Photo: CARLOS GARCIA RAWLINS / REUTERS
The largest real estate developer in China, the completely indebted Evergrande Group, warned again of a default on Friday evening.
Even a badly ailing competitor, the real estate company Kaisa, had to announce on Friday that it might not be able to make interest payments of the equivalent of 354 million euros in the coming week.
Evergrande's founder, Xu Jianyin, was called in by the Guangdong Province government after the company warned of a default. The company is headquartered there in Shenzhen City. The government announced that it would send a working group to the group. This should "monitor and promote" risk management.
After years of credit-financed expansion, Evergrande is sitting on a mountain of debt equivalent to around 260 billion euros and has great difficulty servicing its loans. In the past few months, Evergrande had already been unable to make interest payments due several times. On Friday, the group announced in a mandatory announcement to the Hong Kong stock exchange that in the light of its current situation there is "no guarantee that the group will have sufficient funds to continue to meet its financial obligations."
According to the financial news agency Bloomberg, a subsidiary of Evergrande has to pay the equivalent of around 73 million euros by Monday.
Founder Xu had sold Evergrande shares worth $ 344 million just last week, reducing his stake in the company from 77 to 68 percent.
The authorities urge the founder to use his private assets to repay debt.
Real estate developer Kaisa also announced on Friday that the attempt to postpone a payment due next week had failed.
By Tuesday, the company has to pay interest equivalent to 354 million euros.
There is “no guarantee” that Kaisa will be able to meet its payment obligations by then, the message says.
The company's price on the Hong Kong Stock Exchange fell nine percent by the end of trading.
Kaisa is another one of the many companies in serious trouble in the Chinese real estate market.
In terms of sales, Kaisa is only number 27, but over-indebtedness is one of the highest in the industry.
At the beginning of November, Kaisa had proposed a debt rescheduling to the creditors in order to extend the repayment period.
However, the necessary approval from 95 percent of the creditors was not achieved.
The leadership in Beijing began several months ago to tighten regulation of the real estate sector in order to curb speculation with buildings.
The party also wants to prevent social unrest due to constantly rising prices for houses and apartments.
Companies have since struggled to get new loans.
A collapse of Evergrande could not only wreak immense damage in the real estate sector, it could also affect the entire Chinese economy.
The Chinese central bank tried to calm down on Friday.
Reasons for the location of Evergrande are "bad management and blind expansion".
However, these short-term risks of individual real estate developers would not affect the »medium-term and long-term solvency in the market«.
fdi / AFP