China Evergrande group tycoon suffers huge losses as investors revolt
Barely eight months after celebrating a beautiful escape from financial disaster, Chinese billionaire Hui Ka Yan finds himself in crisis-fighting mode.
Renewed concerns about the health of China Evergrande Group, Hui’s flagship real estate company, have pushed its stock to a hair’s breadth from the lowest level since March 2020. Regulators are investigating Evergrande’s links to an obscure bank in the United States. northern China.
It’s yet another dramatic turn of events for a tycoon whose ups and downs are extreme, even by the standards of China’s volatile markets.
At $ 19 billion, Hui’s net worth has fallen by about a third since he struck a deal with investors to avoid a cash shortage in September. It’s down more than half from its 2020 high, according to the Bloomberg Billionaires Index.
The turmoil has the potential to spread much further. With 1.95 billion yuan ($ 305 billion) in liabilities – including dollar bonds that are in portfolios from Hong Kong to London and New York – Evergrande is the world’s most indebted real estate company and l ‘one of the most systemically important borrowers in China.
If Hui fails to revive investor confidence, a liquidity crisis could spill over into the country’s financial system and beyond. The risk has become serious enough that Chinese regulators recently asked banks to conduct a new round of stress tests on their exposure to the developer classified as undesirable.
“If it were in trouble, it would clearly have a significant impact on the Chinese housing market and the economy in general,” said Lan Deng, a professor at the University of Michigan who studies real estate development in China and the States. -Unis, by e-poster.
“Not only would this expose its lenders to greater financial risk, but there could also be possible chain effects spreading across different sectors of the Chinese economy, given how closely the economy is tied to real estate development. . “
Evergrande stock ended the day unchanged on Friday, having previously fallen as much as 2%.
The company’s dollar bond due June 2025 rose about 1 cent on the dollar to 70.5 cents.
Asia Orient Holdings, Asia Standard International Group and Asia Standard Hotel Group – three small-cap Hong Kong companies that bought Evergrande bonds after falling over liquidity fears last year – said in a joint statement that they bought $ 43.5 million tickets Tuesday and Wednesday. .
Evergrande did not respond to a request for comment Thursday. It pledged earlier this week to arrange payment for overdue commercial paper from its subsidiaries and said its dealings with Shengjing Bank Co, a lender in which it has a stake, comply with Chinese law.
The developer has defended its use of sales discounts on some properties and resumed share buyback this week, raising around HK $ 475 million ($ 61 million) since Monday.
He plans to meet at least one of China’s key regulatory borrowing limits for real estate companies – known as the “three red lines” – by the end of this month.
Hui has options as he tries to put Evergrande on a healthier financial footing. Its empire has raised billions of dollars in recent months by selling equity in its property management arm and electric vehicle unit, which are more valuable than Nissan Motor Co although it has yet to sell a single one. car.
Evergrande has several other units that may be candidates for listing, including its bottled water subsidiary and an online home and car sales platform.
It also benefits from a vibrant Chinese real estate market, said Maggie Hu, professor of real estate finance at the Chinese University of Hong Kong. The company collected nearly 52 billion yuan in cash in May as contract sales rose 6%. This can free up even more money by slowing land acquisitions and getting rid of some investment property and tourism assets, said Edwin Fan, director of Fitch Ratings.
The fate of Evergrande may ultimately depend on whether Chinese authorities allow banks to continue funding it. According to Bloomberg Intelligence analyst Kristy Hung, up to 81% of the company’s debt owed in 2021 is in the form of bank loans.
A short-term explosion seems unlikely, given that authorities are likely to place special emphasis on stability as the Communist Party’s 100th anniversary approaches on July 1.
Officials in Evergrande’s home province of Guangdong helped organize the deal last year, helping the developer avoid a cash crunch.
The group photo taken to announce the deal showed Hui standing amid 35 smiling and cheering strategic investors who had just surrendered their right to force a $ 13 billion repayment.
That said, China’s top executives have shown an increased willingness to let big companies fail as they try to bring moral hazard under control.
HNA Group Co, once considered one of China’s best-connected conglomerates, is now in the midst of a court-led restructuring that involves 1.2 billion yuan in claims from creditors.
Several Chinese real estate companies have defaulted in recent months and questions continue to hang over the future of state-owned China Huarong Asset Management Co, the bad debt manager that has scared investors by failing to release its 2020 results. Huarong and Evergrande both have around $ 21 billion in dollar bonds outstanding.
Hui transformed Evergrande from a dilapidated Guangdong developer into one of the world’s biggest real estate juggernauts, in part by capitalizing on creditors’ assumption that his company was too big to fail. Nowadays, this bet no longer seems a certainty.