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Friday, January 21, 2022

Evergrande shares slump on renewed default fears


Fears about the future of Chinese property giant Evergrande Group have returned amid news it could default on its latest debt repayment.

Shares in the company, whose crisis has reverberated throughout the wider property and banking sectors, fell up to 20% to a record low on Monday.

Evergrande said in a statement over the weekend that it could not guarantee “the performance of its financial obligations.”

It owes £300 billion (£226 billion) in liabilities, some of which are owed to companies outside of China.

According to reports, Chinese officials summoned property developer billionaire founder Hui Ka Yan to explain the latest situation.

According to Evergrande’s statement: “Given the group’s current liquidity situation, there is no guarantee that it will have enough funds to meet its financial obligations in the future.

“The company received a demand for $260 million in performance obligations under a guarantee.

“If the group is unable to meet its guarantee obligations or certain other financial obligations, creditors may demand an acceleration of repayment.”

Conita Hung, investment director at Tiger Faith Asset Management, said that despite Evergrande’s attempts to sell assets to repay debts for months, the latest statement suggested the company would “surrender and require assistance.”

“This sends a very bad signal,” she said, adding that even with Chinese government assistance, Evergrande’s problems will take years to resolve.

The central bank, banking and insurance regulators, and securities regulators all issued statements over the weekend indicating that the risk to the property sector could be contained.

China’s booming residential and commercial property markets prompted Xi Jinping’s government in Beijing to limit risky lending to a sector that some experts feared would collapse.

Evergrande was one of a number of developers who were cash-strapped as a result of regulatory borrowing restrictions, but this resulted in offshore debt defaults, credit-rating downgrades, and sell-offs in developer shares and bonds.

To calm the situation, regulators urged banks in October to relax lending to developers and allow real estate firms to raise more capital from investors.

Sunshine 100 China Holdings, a smaller property developer, announced on Monday that it had missed a $170 million debt payment “due to liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment and the real estate industry.”

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