Chinese regulators summon Evergrande executives, urge them to keep operations stable, resolve debt risks
Chinese regulators summon Evergrande executives, urge them to keep operations stable, resolve debt risks

Chinese regulators summon Evergrande executives, urge them to keep operations stable, resolve debt risks

 

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Chinese regulators on Thursday summoned executives of China Evergrande Group, the country’s most indebted property developer, amid market concerns about its mounting debt and asked the company to resolve debt risks.

“As a leading real estate company, Evergrande must earnestly implement the stable and healthy development strategy of the property market set out by the central government … and maintain the stability of the property and financial markets,” the People’s Bank of China and the China Banking and Insurance Commission said in a joint statement.

The unusual summons comes amid fragile confidence in China’s credit markets and concern that any financial crisis at Evergrande could pose a systemic risk as the company struggles to find the cash it needs to pay its lenders. It also comes days after President Xi Jinping highlighted efforts to prevent major financial risks and amid a series of regulatory crackdowns.

The PBOC and CBIRC also told Evergrande to follow rules and disclose information of major events in a timely manner to prevent rumours from spreading in the market.

The regulators’ concerns come close on the heels of the executive reshuffling at Hengda Real Estate Group, Evergrande’s closely-held mainland China property unit.

Earlier this week, billionaire Hui Ka-yan, who controls the Hong Kong-listed China Evergrande, stepped down as chairman of Hengda and promoted Hengda director Zhao Changlong to the position, according to information provided by the National Enterprise Credit Information Publicity System, a state-owned credit data portal.

The listed company did not make any public announcement about the personnel change, prompting speculation of Hui’s exit from the group spreading online and causing its shares to fall.

However, an Evergrande spokesperson responding to media inquiries said that it was “a normal personnel change” and it did not have any impact on the management structure or a change in shareholdings.

Evergrande has been struggling to raise funds to pay its debts after Beijing stepped up curbs on the real estate sector to contain the risks of a bubble. Concerns intensified after it failed in June to pay some commercial paper on time. A Chinese court froze a $20 million bank deposit held by the firm on the request of China Guangfa Bank last month.

Evergrande has more than 240 billion yuan ($37 billion) of bills and trade payables from contractors to settle over the next 12 months, according to data from global ratings agency S&P Global.

Its bonds carry junk ratings from S&P, Moody’s and Fitch, all of whom recently issued downgrades, and its troubles have sent jitters through China’s entire junk-debt market at a time when corporate credit is rallying in the rest of the world.

The regulators’ statement was published after market hours. Evergrande stocks and bonds have been heavily sold for months amid fears it may not be able to meet repayments, with its share price hitting an almost five-year low in Hong Kong on Thursday.

The developer said last week that it was in discussions with several independent third-party investors on the proposed sale of certain assets, including stakes in Evergrande NEV, as part of its efforts to reduce its debt.

On Thursday, it’s reported that Evergrande is in talks with smartphone maker Xiaomi and Shenzhen state-backed investment firms as it looks to sell part of a 65 per cent stake in its electric vehicle unit.

In May, the developer put a 2.66 per cent stake in Evergrande NEV on sale at a 20 per cent discount to raise about HK$10.6 billion ($1.36 billion).

In addition, China Evergrande Group raised about 1 billion yuan after paring its stake in Shengjing Bank Co.,

Evergrande Nan Chang sold about 167 million shares in Shengjing Bank, or 1.9 per cent of the total shares issued, at 6 yuan apiece, the same as its purchase price in 2019, to two state-backed units of northeastern Shenyang city, the bank said in an exchange filing on Wednesday.

It said its board would support key local state-owned enterprises to gradually increase their holdings in batches and “adjust the equity structure to become the bank of the government.”