China urges Evergrande founder to pay debt with his own fortune

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Last week, Evergrande surprised some Chinese observers by pulling off the brink of default, paying an $ 83.5 million coupon to international bondholders before the grace period expired on October 23. We do not know where the funds come from. Separately, Reuters reported that Hui had agreed to put his own money into a Chinese bond-linked residential project to ensure it is completed and bondholders are paid.

The next test will be a dollar coupon payment due on October 29, at the end of a 30 day grace period. A heavy wall of maturing debt awaits in 2022, with some $ 7.4 billion in onshore and offshore bonds pending.

Evergrande narrowly avoided defaulting on its loans last week but remains on the edge, Credit:Getty

There has been little help from the asset sale in recent months, even after Hui put stakes in once prized weapons such as his electric vehicle and bottled water units on the block. Evergrande said last Wednesday it had dropped talks to get rid of a stake in its property management arm. The deal fell apart even after officials in Evergrande’s home province of Guangdong helped negotiate the talks, a person familiar with the matter said.

Just a year ago, such support – and help from Hui’s wealthy friends – was enough to put the company through a liquidity crunch, when it failed to secure a backdoor listing. for its continental unity. Today, the Hui Empire is emerging as one of the biggest victims of President Xi’s efforts to curb debt-fueled excesses of conglomerates and defuse risks in the housing market.

Evergrande and its affiliates were built on an aggressive mix of debt issuance, equity sales, bank loans, and shadow financing – funding avenues that were largely cut off by the crackdown.

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The Ministry of Housing and Urban-Rural Development tasked local affiliates across China in August to oversee funds for Evergrande’s real estate projects in special escrow accounts, sources close to home said. Under increased surveillance, the developer’s funds must first be used for construction to ensure the delivery of the project, the people said.

Evergrande has yet to complete homes for 1.6 million buyers who have already made down payments. Its real estate sales fell about 97% during peak home buying season, further reducing its ability to generate funds.

Business problems infect the entire housing market. Sentiment among buyers evaporates, and in September, prices began to drop for the first time in six years.

China’s banking regulator pledged last week to maintain restrictions on the country’s property market, even as policies weighed on indebted developers. As officials have called on banks to step up mortgage lending again, the central bank has indicated that Evergrande’s contagion risks are “controllable” and unlikely to spread.

Bloomberg

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