Evergrande: China's real estate giant warns of default, government appoints founder Xu Jianyin

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Evergrande in Need: "No guarantee that the group will have sufficient funds to continue to meet its financial obligations"

Photo: ROMAN PILIPEY / EPA

The Evergrande drama continues to come to a head. The heavily indebted real estate giant cannot guarantee that a bond due by Monday will be repaid on time. The government in Guangdong Province announced on Friday that it would send a "working group" to the group. Evergrande is headquartered in Shenzen, Guangdong Province. The state reaction force is supposed to "monitor and promote" the risk management of the ailing real estate giant.

After years of credit-funded expansion, Evergrande is sitting on a mountain of debts equivalent to around 260 billion euros and has great difficulty servicing its loans. On Friday, the group announced in a mandatory announcement to the Hong Kong stock exchange that in 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 $ 82 million by Monday.

Founder Xu - Hui Ka Yan in Cantonese - had just last week sold Evergrande shares worth $ 344 million, reducing his stake in the group from 77 to 68 percent.

The authorities urge the founder to use his private assets to repay debt.

"No guarantee" for repayment - shares buckle again

Real estate developer Kaisa also announced on Friday that the attempt to postpone a payment due next week had failed.

There is "no guarantee" that Kaisa will be able to meet its payment obligations by then.

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 its over-indebtedness is one of the highest in the industry.

By Tuesday, the company has to pay interest equivalent to 354 million euros.

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 property developers would not affect the "medium-term and long-term solvency in the market".

la / afp