Evergrande faces investor protests as liquidity crunch worsens

Evergrande Real Estate Group Ltd updates

Evergrande has hired restructuring advisers and warned that its liquidity is under “tremendous pressure” from collapsing sales as China’s most indebted property developer faces protests by home buyers and retail investors.

In a statement to the Hong Kong stock exchange, Evergrande disclosed that its monthly sales had almost halved from June to August, falling from Rmb71.6bn ($11bn) to Rmb38.1bn.

While September is usually a bumper sales month for developers, Evergrande, which last month warned over the risk of default because of a spiralling liquidity crisis, blamed “negative media reports” for depressing confidence in the company from potential property buyers.

The company said it had hired Houlihan Lokey and Admiralty Harbour Capital to evaluate its liquidity and “explore all feasible solutions” to ease its mounting debt crisis.

Based in Shenzhen in southern China, Evergrande is saddled with almost Rmb2tn ($310bn) of total liabilities, raising concerns that any failure to repay its debts could pose a broader risk to the country’s financial system and international bond markets, where it has borrowed heavily.

The group’s mounting credit woes have coincided with a Chinese government regulatory drive against big technology groups, the real estate industry and other sectors.

On Monday, the country’s housing ministry announced a three-year inspection campaign to tighten regulation of the property sector. Last year, the government implemented a strict “three red lines” policy aimed at reducing developers’ leverage, which China’s banking regulator has labelled the country’s biggest financial risk.

In recent days, Chinese social media platforms have been flooded with complaints from property buyers worried that their new homes would not be completed and from investors who bought wealth management products sold to fund Evergrande’s real estate projects.

State media reported that hundreds of people protested at Evergrande’s Shenzhen headquarters and met senior executives on Sunday after the group suspended payments on some of its wealth management products.

Police were deployed to keep order as the demonstrations continued on Monday, according to videos circulating online. Other protests have been held at Evergrande’s offices and developments across China, including in Guangzhou, Zhengzhou and Qingdao, according to social media posts.

Evergrande relies heavily on customers paying for flats before the projects are completed.

In its statement, Evergrande also revealed that two of its subsidiaries had not been able to “discharge their guarantee obligations as scheduled” on about Rmb934m in wealth management products issued by other third parties.

To reduce its debts, Evergrande is seeking to slash costs and sell assets including stakes in an electric vehicles business and a property services group, both of which are listed in Hong Kong, as well as a flagship property in the territory.

Evergrande’s Hong Kong-listed shares fell as much as 11 per cent on Tuesday, bringing their total decline for the year to date to about 80 per cent. Shares of Evergrande New Energy, the electric car company, dipped 22 per cent.

On Tuesday, the group’s Beijing office was stripped bare. A worker said the company had relocated to premises outside the city centre last month.

Retail investors in Evergrande’s wealth management products said they were entitled to interest rates of 7-9 per cent, and the company’s inability to repay overdue products has created a stampede of investors intent on getting their money out.

To compensate investors holding products or demanding to redeem them ahead of schedule, Evergrande has offered new repayment plans or swaps for flats and parking spots.

Evergrande’s misery has rippled across global bond markets, where its debt maturing next year traded as low as 30 cents on the dollar, helping push yields higher across riskier Chinese issuers.

“Fear and uncertainty are dominating market sentiment,” said Paul Lukaszewski, head of corporate debt for Asia-Pacific at Aberdeen Standard Investments. 

Additional reporting by Hudson Lockett in Hong Kong

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