Chinese real estate giant in trouble Evergrande failed to deliver a preliminary debt restructuring plan it had promised by July 31, sparking fresh concerns about the future of the world’s most indebted developer.
The real estate company’s failure to meet its self-imposed deadline comes at a time when the entire Chinese real estate industry is facing a growing boycott of mortgages and falling home sales.
According a trade deposit fridayEvergrande instead offered some details on “preliminary restructuring principles” for its offshore debt, and said it aimed to announce “a specific offshore restructuring plan by 2022”.
Evergrande, China’s most indebted developer with $300 billion in liabilities, has been at the heart of the country’s property troubles since last year. This defaults on its US dollar bonds in December after struggling for months to raise funds to repay creditors, suppliers and investors.
To contain the fallout, the Chinese government has intervened at play a leading role guiding the company through a debt restructuring and sprawling business operations.
In Friday’s filing, Evergrande said it had made “positive progress” in its offshore restructuring process, but added that he is still working with creditors and advisers on conducting due diligence of the company.
“Given the size and complexity of the group and the dynamics it finds itself in, the due diligence process remains ongoing,” he said, adding that the work could be completed in the “future close”.
The lack of a concrete proposal highlights the uncertainties surrounding Evergrande’s opaque restructuring of its huge debt and sprawling business operations at a delicate time for China’s property sector and economy.
International creditors had complained earlier this year that they had been left completely in the dark about the company’s intentions.
After creditors demanded updates and threatened legal action, Evergrande pledged in January to release “a preliminary restructuring proposal” within six months. In June, he assured investors he was on track to deliver the plan by the end of July.
Development comes to a difficult time for China’s real estate sector, which has been struggling with a sharp drop in house prices, weakening demand from buyers and a series of defaults by real estate companies.
China’s economy also slowed dramatically after strict covid lockdowns lower demand and disrupted industrial activities. Gross domestic product increased by 0.4% in the second quarter, the weakest growth rate since the start of the pandemic. Analysts fear that the government’s 5.5% annual growth target is out of reach.
Evergrande is huge — it has around 200,000 employees, had over $110 billion in sales in 2020, and has over 1,300 developments in over 280 cities. Several of his real estate projects have been delayed since last year due to the company’s cash flow problems.
Analysts have long worried that a collapse of Evergrande could trigger greater risks for China’s property market, hurting landlords and the broader financial system. Real estate and related industries account for up to 30% of GDP.
Since Evergrande’s default, several other major developers, including Kaisa, Fantasia and Shanghai-based Shimao Group, have also sought protection from creditors.
In recent weeks, the real estate crisis has worsened further. Thousands of angry buyers who had already made deposits for unfinished projects threatened to stop paying mortgages if construction is not completed on time. Some of them have staged protests in central Wuhan citylobbying local government and banks to help developers deliver their prepaid homes.
“Mortgage boycotts are a dual threat to developers and the housing market,” Capital Economics analysts said in a report late last month.
They drew attention to the problem of cash-strapped developers unable to complete properties they have already sold, which is “holding back new buyers”. The boycotts have also made banks more cautious about issuing mortgages, which could further hurt real estate sales, they added.
In a report Last week, S&P Global Ratings estimated that property sales in China could fall by a third this year due to mortgage strikes, as people believe developers won’t be able to finish pre-sold units at time – the most common way to sell homes in the country.
“Without sales, many more developers will collapse, which is both a financial and economic threat,” analysts at Capital Economics said.