Receive free Evergrande Real Estate Group updates
We’ll send you a myFT Daily Digest email rounding up the latest Evergrande Real Estate Group news every morning.
Critics always regarded Chinese property group Evergrande as an accident waiting to happen. Now, even company bosses are conceding that the expected collision has occurred. Property prices have not rebounded as they hoped. That is reflected in an $81bn loss in results for 2021 and 2022, finally published this week.
Creditors are pushing for the bankruptcy of a real estate unit of Evergrande in the city of Xian. Chinese high-yield dollar bonds have fallen to the brink of distress, signalling the fallout is spreading.
Evergrande’s excessive gearing made it an outlier even within China’s highly leveraged property sector. A weakening economy has now rendered the business more contagious than feared.
Borrowings rose to $340bn at the end of last year. The real picture may be worse. Evergrande’s auditor signed off accounts with a disclaimer concerning scanty audit evidence. Stating the obvious, the board questioned whether the business is a going concern.
The shares have been suspended since a default last March. The company needs at least three-quarters of each group of creditors to approve a debt rejig. That looks challenging.
Evergrande faces more than 1,300 lawsuits with total claims of $45bn. Many come from disaffected offshore investors. They would prefer quick, court-ordered liquidations to lengthy restructuring talks.
On Tuesday, the average price of Chinese high-yield bonds across all sectors fell to about 70 cents. Sub-investment grade dollar bonds are heavily dominated by real estate issuers. Even so, fears are growing of wider fallout. So much for assurances from analysts in January that the worst was over for Chinese bonds.
Peers such as Wanda and Sino-Ocean Group may follow Evergrande into the crash repair workshop. Prudent foreign investors never invested in the over-leveraged outliers in China’s property pack. Any creditors still in there should consider selling out to distressed debt specialists with the patience and risk appetite for the struggle ahead.
If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.
