Embattled Evergrande warns of growing default risks as pressures mount

HONG KONG/SHANGHAI, Sept 14 (Reuters) – Money-strapped property group China Evergrande Group mentioned on Tuesday it has engaged advisers to look at its monetary choices and warned of default dangers amid plunging property gross sales, sending its inventory and bond costs sharply decrease.

The true property big has been scrambling to lift funds it must pay lenders and suppliers, with regulators and monetary markets anxious that any disaster might ripple by China’s banking system and probably set off wider social unrest.

Within the newest growth, Evergrande mentioned two of its subsidiaries had did not uphold assure obligations for 934 million yuan ($145 million) value of wealth administration merchandise issued by third events.

That would “result in cross-default”, which might “would have a fabric adversarial impact on the group’s enterprise, prospects, monetary situation and outcomes of operations,” it mentioned in a press release to the Hong Kong inventory alternate, with out offering additional particulars on the merchandise.

The corporate’s shares slumped to a six-year low in Hong Kong on Tuesday and the Shanghai bourse halted buying and selling of its listed bonds amid wild swings in its worth.

Evergrande mentioned it has appointed Houlihan Lokey and Admiralty Harbour Capital as joint monetary advisers, the clearest indication but that it’s taking a look at restructuring choices, analysts say.

The 2 companies will assess the group’s capital construction, consider its liquidity, discover options to ease the present liquidity stress and attain an optimum resolution for all stakeholders as quickly as attainable.

“Evergrande’s announcement flags step one of a restructuring, which normally entails both delay in curiosity fee, no curiosity fee or delay along with haircuts,” mentioned James Shi, distressed debt analyst at credit score analytics supplier Reorg.

He added liquidation would solely occur if the restructuring failed.

Evergrande late on Monday mentioned on-line hypothesis about chapter and restructuring was “completely unfaithful”.

That got here regardless of rising markets expectation that Evergrande might must restructure, after China dominated in August that numerous lawsuits in opposition to the developer can be centrally dealt with in Guangzhou.

Evergrande mentioned it’s speaking to potential buyers to promote a few of its belongings, however has made no “materials progress” to this point.

The corporate mentioned earlier this month that it was in talks to promote sure belongings, together with stakes in Hong Kong-listed models Evergrande New Vitality Automobile and Evergrande Property Companies .

Strain on Evergrande – which has 1.97 trillion yuan ($305 billion) in liabilities – has intensified in latest weeks as fears over its potential to repay buyers triggered protests which might be sure to rattle Beijing.

The corporate blamed “ongoing destructive media reviews” for dampening investor confidence, leading to an additional decline in gross sales in September.

WIDER IMPACT

Shares of the corporate fell over 10% on Tuesday morning to their lowest since December 2014. Its listed e-vehicle spinoff plunged over 23% and shares of its property administration unit dropped 8%.

Within the debt market, Evergrande’s June 2025 greenback bonds fell practically 6 cents on Tuesday late morning to 27 cents, yielding 58.45%, in accordance with monetary information supplier Period Finance.

Strikes within the firm’s extremely illiquid onshore bonds had been extra erratic, with one Shanghai exchange-traded bond surging practically 23% and triggering a buying and selling halt, whereas one other in Shenzhen dived virtually 12%.

Reorg’s Shi mentioned there could also be recent bond promoting if Evergrande defaults, however the market spillover can be restricted as a result of the dangers have largely been largely priced in.

The larger dangers are more likely to be social, he added.

Offended buyers gathered close to Evergrande’s headquarters within the southern Chinese language metropolis of Shenzhen on Monday to demand the agency repay loans and monetary merchandise.

The developer’s struggles to rapidly unload belongings and avert defaults on its huge liabilities are elevating the danger of contagion for different privately-owned builders, fund managers and analysts say.

In a press release on Monday, it mentioned it was going through “unprecedented difficulties” however would do every thing attainable to renew work and shield the respectable rights and pursuits of its clients.

The corporate’s debt has been repeatedly downgraded by rankings companies concentrating on the developer over its struggles to restructure enormous money owed.

($1 = 6.4511 Chinese language yuan)

Further reporting by Miyoung Kim and Andrew Galbraith; Enhancing by Shri Navaratnam and Sam Holmes

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