This is still the big blur for Evergrande’s international creditors. The Chinese real estate giant has pledged to present a “preliminary restructuring plan” by the end of July, but instead its creditors have had to settle for a concise update citing “preliminary restructuring principles”.
The Chinese promoter, squeezed by a mountain of debts estimated at 300 billion dollars, has remained vague as to how his international creditors – to whom he owes 20 billion dollars – will be able to hope to recover part of their shares. At most, he mentioned using his assets located outside of China, including holdings in his listed subsidiaries specializing in property management (Evergrande Property Services) and electric vehicle manufacturing (China Evergrande New Energy Vehicle). .
Loss of credibility
The detailed plan will wait, at best, until the end of the year. “The market can hardly believe it, Evergrande has already lost a lot of credibility while its financial problems have been going on for more than a year,” remembers Xiadong Bao of Edmond de Rothschild AM in reference to the first warnings launched on the Chinese promoter. The trust gap in the group is immense, especially after the ouster of the boss and his chief financial officer in mid-July following an internal investigation into the fraudulent use of 13.4 billion yuan owned by a subsidiary as collateral. for obtaining bank loans.
The expectations of Evergrande’s creditors appear limited. On the financial markets, the dollar debt of the troubled Chinese giant is trading at less than 10% of the nominal. The promoter’s share price has been suspended on the Hong Kong Stock Exchange since last March. The promoter’s off-balance sheet commitments are revealed big time, according to ongoing legal proceedings. An arbitral tribunal recently ordered one of its subsidiaries to pay $ 1.1 billion, which will require the sale of a stake in a local bank.
Beyond the specific case of Evergrande, investors remain cautious in the face of the crisis in the Chinese real estate market. According to China Real Estate Information, sales of the country’s top 100 developers fell nearly 40% year-on-year in July. “Overall market demand and purchasing power have run out, while industry confidence is also low,” the group noted in its report. “Developers still face a lot of pressure on short-term destocking,” he added.
Of course, the decline is slightly less severe than in June (-43%), but the recovery is slow. Investors are also concerned about the refusal of some homeowners to repay their mortgages in the face of downturns. The government has recently multiplied statements of support for the sector in an attempt to reassure the markets when real estate and construction represent more than a quarter of the country’s GDP. On Monday, the People’s Bank of China again pledged to ensure stable funding for the sector and “reasonably ample” liquidity.
The task of the authorities is difficult. “The government tries to avoid any moral hazard, it does not want to encourage risk-taking in the sector again,” says Xiadong Bao. Moreover, the current crisis is the consequence of the limits on the sector’s debt put in place by Beijing more than a year ago. “Support measures exist, but they are often proportionate on a case-by-case basis,” she adds.
Faced with market volatility and uncertainty over the government’s plans, the manager limits his investments to the strongest promoters with the healthiest balance sheets. It prefers companies directly linked to the Chinese state, which could benefit from its support in case of difficulty. But there is no guarantee that Beijing will rush to the aid of these companies. Faced with the deterioration of the real estate market, the rating agency Moody’s placed the securities of the promoter Sino-Ocean on Monday in the speculative category, despite the company having as its main shareholder the public group China Life.
Alibaba in turn threatened exclusion from Wall Street
Bad surprise for the Chinese e-commerce giant. The US financial markets watchdog, the SEC, has included Alibaba on its list of Chinese companies threatened with deletion from the US list for failing to open their accounts to US accounting regulators. Its stock fell 3.8% in Hong Kong after falling nearly 10% in New York on Friday. The group, which recently announced its intention to make Hong Kong its main listing location, said it intends to maintain its listing on Wall Street. But investors are concerned about growing tensions between the world’s two largest economies.