Debt pile of China’s Evergrande Group poses systemic risk to China’s social and economic fabric

Over burdened with a pile of debt, China’s second biggest property developer, Evergrande Group, is desperate for government support for a restructuring plan that has been waiting for four years, and has warned that it faces a cash crunch that could lead to systemic risks, said sources familiar with the matter at hand.

With the news reaching the market, in early trade on Friday, shares of China Evergrande Group dropped by as much as 4.6% on concerns over its cashflow.

According to three sources familiar with the matter at hand, Evergrande, China’s most indebted developer, made the request in a letter dated August 24, 2020, to the government of southern Guangdong province.

With the news reaching the market, Evergrande’s Hong Kong-listed shares fell by 5.8%.

In the letter Evergrande stated, Hengda Real Estate, its subsidiary, will have to repay $19.05 billion (130 billion yuan) that it raised from investors. Along with this amount, Hengda will also have to repay a bonus of 13.7 billion yuan before January 31, 2021.

In the event the restructuring plan does not goes through could lead to the creation of systemic risks, said Evergrande in the letter. It could ultimately lead to defaults of the entire group and increase social instability due to job massive job losses, warned the letter.

Plans to take over already-listed firms are referred to as “backdoor listings”.

Chinese policymakers are concerned about the risks of price bubbles in its property sector, one of its key economic driver, following enactment of emergency stimulus measures and interest rate cuts as a measure to mitigate the economic fallout of the coronavirus pandemic.

Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy, Sustainability

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