These are some keys to understanding what’s going on in the company, The company that became China’s largest real estate developer:
1. The emergence of the crisis
All the alarms went off right in the middle 2021, when evergrande defaulted on foreign debt In a period when there were liabilities exceeding 300 billion dollars (“offshore”), it led to hundreds of lawsuits being filed and an environment of great uncertainty in the sector due to the consequences of a possible bankruptcy.
Like many other Chinese developers since the real estate boom of the late 90s Evergrande was heavily leveraged (from debt to financing operations) and continued to pursue its developments using off-plan sales: some analysts estimated that the firm had sold 1.4 million homes before its construction when the crisis hit, amounting to more than $200,000 million.
2. ‘Three red lines’
Among the causes of China’s real estate crisis The so-called ‘three red lines’ stand out in the regulations promoted by Beijing in 2020 It sought to limit access to financing for promoters who accumulated excessive liabilities, exceeded certain leverage levels, or did not have sufficient liquidity to service short-term liabilities.
this did Many companies in the sector faced a liquidity crisis This was added to the restrictions imposed in those years in order to “cool” high housing prices that many Chinese families could not afford, in line with the principle of the country’s president, Xi Jinping, which assured that “houses are for living.” They should not speculate”.
3. The market does not react
The slowdown in growth after “Zero Covid”, the weight of the real estate sector on GDP (according to some analysts, around 30% by adding indirect factors) and the distrust of buyers, The slowdown in the market, which worries not only developers but also families, Seeing housing as an important investment tool
Given the situation, regulators have responded in recent months with measures to support the sector, guarantees for the delivery of disposed homes and the removal of many of the restrictions mentioned above, but The market does not respond: According to official figures, commercial sales measured by land area fell by 24.3% in 2022 and 8.5% in 2023.
4. No restructuring agreement
Evergrande submitted a proposal to restructure almost $20 billion of outstanding offshore debt but delayed its creditors’ votes multiple times; The last of these took place last September. He claimed that sales were worse than he expected. It announced that it could no longer issue new debt through its main subsidiary in China.
According to the American newspaper The Wall Street Journal, Last round of negotiations with creditors failedThis, which has seen a significant group of outstanding ‘offshore’ bondholders come out in support of the liquidation request, appears to have been key in triggering today’s decision, which comes after seven adjournments due to negotiations while the group sold assets to raise funds. .
5. Turbulence returns
The last few months have been particularly turbulent for Evergrande: Posted losses of more than $86.7 billion since 2021Having filed for bankruptcy in the US and been frozen for a year and a half to protect its assets, its shares have fallen almost 99.5% from their peak in October 2017.
Founder and president at the end of September, Xu Jiayin, China’s richest man, was placed under a form of house arrest under “suspicion of illegal activity”; Authorities also recently arrested the vice president of the group’s electric vehicle subsidiary and several employees of its asset management subsidiary.
6. What happens now?
The Hong Kong judge who ordered the liquidation is expected today to appoint a trustee to take control of the company’s management and assets, but Some analysts raise the question of whether this decision will be recognized by mainland China.Hong Kong is where the group has most of its assets because its judiciary is separate from China under its semi-autonomous status.
“Judicial administrators will have very limited enforcement authority over onshore assets “If they don’t get that recognition (in mainland China),” Lance Jiang, a partner at Ashurst LLP, said, quoted by the local South China Morning Post newspaper.