Evergrande was the second real estate agency Chinese And Today, the first debtor in the world, is flirting with liquidation and accumulating troubling news. The last one affects its founder and president, Xu JiayinHe was investigated by police and subjected to “home surveillance” at an unspecified location, according to US agency Bloomberg. Evergrande’s problems are a synthesis of the problems of an industry that boosted the national economy in its glory years and is now dragging it down.
Residential surveillance is a common mechanism in China at the beginning of an investigation. This does not mean that Xu has already been detained, arrested or charged, but it does impose restrictions on movement and communication. The company did not confirm the news, but media outlets confirmed that Xu had not contacted employees in weeks.
This is not the company’s first legal problem. several directors Evergrande WealthThe subsidiary that manages the property was detained by police in the southern city of Shenzhen weeks ago, but the company quickly said this would not affect its operations. In August, it was revealed that Hengda Real State, the group’s main unit in mainland China, was being investigated by the Securities Regulatory Commission over allegations of information disclosure violations. The police operation caused the company’s latest stock market crash and prevented it from issuing bonds it had used to ease its desperate financial situation. The attack shows that Beijing sees more than incompetence in the mess.
The company has spent two years trying to save the water to avoid a liquidation with debts of $300bn (almost €280bn), which seems unlikely. His dogged attempts at restructuring did not work, and he canceled his last meetings with creditors due to a cash crunch. In March, it announced plans to settle its offshore debt in exchange for notes of different maturities. It defaulted on $83.5 million worth of international bonds this week, and other commitments are on the horizon. An international debtor plans to file a liquidation petition in court unless it provides a reliable road map in October, Reuters reported yesterday.
Evergrande’s situation sums up the state of the industry. Raised by his grandmother in rural Henan province, Xu founded the company on the vibrant east coast in 1996. He bought land with loans, sold off-plan houses and financed new projects with the proceeds. He entered the Consultative Conference of the National People’s Congress, one of the most prestigious political bodies, became the country’s biggest fortune, and bought the Guangzhou football team, which dominated the national championship for years with million-dollar signings.
Debt and covid
The formula has worked for decades. rapid urbanization processA thriving middle class that sees bricks as the safest investment and dazzling economic growth. Credit limits applied to real estate companies approved by Beijing in 2020, Huge debt and slowdown caused by covid disrupted business. Evergrande defaulted for the first time in a year, and the negative publicity ruined future sales. A real estate crisis arose, which is still ongoing and threatens other giants of the sector such as Country Garden.
The situation worries a government that prioritizes social stability: Some investors see the price of their properties collapse, while others do not even know whether they will be able to buy the houses they have already paid for. The crisis has prompted Beijing to ease its restrictive policies in recent months, allowing the state financial system to extend credit to struggling construction companies.