China Evergrande, the struggling real estate giant that has become a symbol of debt and excess in the world’s second-largest economy, said on Tuesday it was facing “enormous” financial pressure and had hired restructuring experts to “explore all possible solutions “for his future.
The fate of the company, however, remains uncertain, as it struggles in a country where trade issues often attract direct attention – and direct interference – from Beijing.
Evergrande’s admission that its finances have taken a dramatic turn caused its already battered stocks to drop 12% on Tuesday. Its shares have lost more than four-fifths of their value over the past year.
Its foreign-traded bonds also plunged, leaving global investors in some cases with investments valued at around 25 cents on the dollar.
The real estate developer has become the biggest mess for Chinese companies. Its fate threatens the real estate industry and the wider Chinese financial system, testing the resolve of regulators who attempt to cleanse the country’s corporate culture.
Evergrande has been hit by a barrage of negative attention from panicked buyers and experts warning of an impending default in recent weeks. It owes more than $ 300 billion to its suppliers, creditors and investors. Hundreds of its unfinished real estate developments dot the skyline of cities across the country.
Evergrande’s problems have cast doubt on the Chinese real estate market, one of its most important economic growth engines, but also one that is showing signs of slowing down. Shares of other Chinese real estate developers also fell after Evergrande’s disclosure on Tuesday.
Business and Economy
Under pressure from regulators to clean up its finances and reduce its debt, Evergrande attempted to sell off pieces of its sprawling empire, such as an electric vehicle unit and a property management services group.
But on Tuesday, the company said it was “uncertain whether the group will be able to close such a sale.” He blamed media coverage for his problems, saying “ongoing negative media reports” have scared homebuyers and will lead to disappointing sales this month, putting pressure on his cash flow.
The fate of Evergrande could be in the hands of the Chinese government.
Rating agencies have warned that the company is at high risk of defaulting on its loans and other obligations. Yet more than other major countries, Beijing keeps its financial system under a firm hand and can ward off creditors, at least for a while. The central government controls China’s largest banks and financial institutions and strictly limits the flow of money across its border.
Authorities intervened when previous companies stumbled. Three years ago, Beijing took control of Anbang Insurance Group, which had a vast overseas empire that included the Waldorf-Astoria Hotel in Manhattan. The authorities had detained its president months before and he was then sent to prison for fraud.
Early last year, local government officials stepped in to take control of HNA, a transport and logistics conglomerate struggling with debts resulting from expensive overseas acquisitions. Under their leadership, the ailing company was put into administration.
Until recently, Evergrande tried to adopt a more positive tone, even as experts warned the developer was getting closer to a flaw.
As rumors circulated online of impending bankruptcy and plans to lay off most of its employees, Evergrande denied Monday and said he was “resolutely fulfilling his corporate responsibility.”
“The rumors about the bankruptcy and restructuring of Evergrande that have surfaced recently on the Internet are totally false,” the company said Monday evening.