Hong Kong/China: Evergrande Group Raised Warnings of Default Risks

Evergrande Group, which is based in Shenzhen and listed on the Hong Kong stock exchange, has raised fresh warnings of default risks. China’s second-largest property developer is struggling to raise funds to pay lenders and suppliers. Revenue growth in its core business has slowed in recent years, so the group had already turned to other business areas, too, such as e-mobility, sports and insurances. Evergrande is also active in the cultural tourism segment, i.e. in the development of leisure and entertainment destinations. Among other nationwide projects, the group is behind the development of the artificial Ocean Flower Island archipelago (Hainan), including a water park, a marine animal park and a theme park in addition to residential real estate and retail projects (cf. our report “Gold Rush on Hainan” in EAP 1/2019).

Evergrande’s total liability, which include payables, is at 1.97 trillion yuan (approx. 261 billion euros or 306.6 billion US dollars), which is two percent of China’s GDP. The group accelerated its debt-reduction efforts last year after regulators introduced caps on three debt ratios. It aims to meet all the requirements of this so-called “three red lines” policy by the end of 2022. However, after a number of measures (including the sale of most of the group’s commercial properties), Evergrande on Tuesday said its asset and equity disposal plans have failed to make material progress. According to the Reuters news agency (with reference to media reports), regulators have approved an Evergrande proposal to renegotiate payment deadlines with banks and other creditors, in order to avoid a bankruptcy of the group. Evergrande employs around 200,000 staff and hires some 3.8 million people every year for project developments. (eap)