evergrande

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Hong Kong (CNN Business)Banks have seized $2 billion in cash from Evergrande, the ailing Chinese real estate developer said Tuesday as it announced a delay to the publication of its annual earnings.

Evergrande said that it won't be able to meet the March 31 deadline for publishing audited results for 2021, a year which saw it default on its debts as prices and activity in China's vast real estate sector slumped.

One of its units — Evergrande Property Services — said some of its lenders had unexpectedly claimed around 13.4 billion yuan ($2.1 billion) of its bank deposits that were pledged as collateral for "third party guarantees."

It didn't specify who the lenders were, saying only that the banks had taken control of the cash. The property services unit said it would establish an independent committee to investigate.

The real estate developer is one of China's largest and its most indebted with more than $300 billion of total liabilities, including about $19 billion outstanding offshore bonds held by international asset managers and private banks on behalf of their clients.

Evergrande was declared by Fitch Ratings to be in default in December — a downgrade that the ratings agency said reflected the company's inability to pay interest due on two dollar-denominated bonds.

In 2020, Beijing started cracking down on excessive borrowing by developers in a bid to rein in their high leverage and curb runaway housing prices. But the sector's problems escalated significantly last fall when Evergrande began warning the markets urgently of liquidity problems.

There's evidence now that the Chinese government is taking a leading role in guiding Evergrande through a restructuring of its debt and sprawling business operations.
But some of the company's international creditors have been losing patience.

A group of overseas bondholders threatened in January to take legal action over the "opaque" debt restructuring process. They said they would "seriously consider enforcement actions" after Evergrande failed to engage substantially with them about reorganizing its operations.

Evergrande has another interest payment due on Wednesday.

The company said in its exchange filing that "audit work has not yet been completed," and "drastic changes" in the operational environment and the Covid-19 pandemic had led to delays in preparing its earnings. It will publish them "as soon as practicable" after the audit has been completed, it said.

Other major developers are also having trouble meeting the March 31 deadline for earnings.
Sunac China and Shimao China, which ranked No. 3 and No. 12 in property sales last year, said Monday that they would also have to delay publishing their annual results. Both cited Covid-related restrictions, such as quarantines and travel restrictions, for holding up the audit process.

Ronshine China, which was among the top 30 developers last year, also said it won't be able to file audited results by March 31 as its original auditor had resigned, according to an exchange filing by the company on Monday. Ronshine China said later that day it has hired a new auditor and will publish audited results "as soon as practicable."
 

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Evergrande’s EGRNF 7.50% latest announcement is raising more questions about how much it really owes. Investors may not like the answers: especially since Chinese property developers’ hidden debt problem isn’t confined to Evergrande alone.

The beleaguered Chinese developer said Tuesday that more than $2 billion of cash held by its separately listed property-service unit has been seized by banks as security for third-party pledge guarantees. The subsidiary said it discovered this during the preparation of its 2021 financial report. Both Evergrande and the unit won’t be able to meet the deadline to publish their annual results before the end of March.

Evergrande hasn’t said what those guarantees are for, or when the banks seized the cash. But it is likely they are linked to the parent company. Lenders seem to be holding on to whatever assets they can still recoup from Evergrande. That would presumably leave even fewer assets remaining on the table for other creditors—such as offshore bondholders.

And investors have been largely kept in the dark about such hidden liabilities.

Evergrande Property Services, 6666 2.68% which generates fees from managing apartment complexes, was assumed to be a relatively solid business with recurring revenue and holding net cash. That assumption turned out to be rather rosy: the cash seized by banks comprises nearly all of the cash on its books.

Indeed, the unit was considered one of Evergrande’s more attractive assets. Evergrande tried to sell its 50.1% stake in the unit for $2.6 billion to its peer Hopson Development in October. That stake was worth $1.6 billion last Friday. Trading in both stocks have been suspended since Monday.

It is now clear that the way that deal broke down was a big red flag. Hopson said it wanted to deposit the proceeds from the sale with Evergrande Property Services itself—as it would be easier to recover any monies owed by the parent to its subsidiary that way. But Evergrande asked Hopson to send the payment directly to it: a request the buyer turned down. That appeared to be indicative of potential problems arising from related-party transactions or obligations that would weigh on the asset’s real value even after the sale. These latest revelations lend further weight to that interpretation.


The hidden debt problem probably isn’t unique to Evergrande. Kaisa, for example, surprised the market last year by saying that it had guaranteed some wealth-management products. More similar incidents may come to light as auditors have now been clued in to the problem. Evergrande said its auditor has added a large number of additional procedures this year. Partly blaming Covid-19, a number of other developers such as Sunac and Ronshine have also said they can’t publish their audited annual results on time. Some have changed their auditors recently.

The Evergrande saga has gone on for months, but investors are still none the wiser on how much value, if any, the company still has. And worryingly, several other important developers may have similar problems—if not quite as large. China’s real estate debt woes are far from over.
 

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Phi Chi Connection
They are all on the ropes, wonder what that collapse will do...only so long fake thugs can pretend...

I am encouraged that this will impact how much they are able to support Russia in this Ukraine bullshyt, but China's money is as funny as the US's. Won't they inevitably just bail everyone out to avert their own debt crisis? No way they just let all of these developers fail and tank their rise as a superpower.
 
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