Six Evergrande executives cashed in their investments just as the company's liquidity crunch became clear. China's second-largest real estate company is close to collapse.
Evergrande has built huge multi-tower property projects in dozens of Chinese cities
Six executives from the troubled property giant China Evergrande illegally sold their investments in the company over the past four months, the company admitted in a statement Saturday.
The revelation comes as the country's second-largest real estate firm by sales is drowning in more than $305 billion (€260 billion) in debt after liquidity from property presales dried up.
"As of May 1, 2021, a total of 44 people, who were then senior executives … held 58 investment products of Evergrande Wealth. From May 1 to September 7, … 6 people redeemed 12 investment products in advance," the company statement said.
The company said it was taking the early redemption seriously. It said that the withdrawn funds "must be returned within a time limit," adding that "severe penalties will be imposed."
Investors have been protesting at Evergrande properties in several cities, demanding their downpayments back
Evergrande could default in weeks
China Evergrande is close to collapse following years of borrowing to fund its rapid expansion. Some commentators say its bankruptcy could be China's "Lehman moment" — a reference to the US investment bank Lehman Brothers that went bust during the 2008/9 financial crisis.
The Shenzhen-based property giant is struggling to convince its many creditors to reschedule billions of dollars in liabilities — ranging from loans, bonds, so-called trust products to money owed to contractors and suppliers.
Interest on bonds worth $130 million becomes due in the next 10 days and will default if Evergrande fails to pay within 30 days.
Reuters news agency reported Friday that three of Evergrande's main lenders were either making provisions for losses on some loans or planning to give the firm more time to repay. But much of the firm's debt is not held with banks
Will Beijing step in?
Some analysts are questioning whether Beijing will step in to either bail out Evergrande or help manage an orderly collapse.
Bankruptcy, even a managed one, would reverberate through the Chinese economy given the firm's liabilities, which are equal to 2% of the country's GDP.
The editor-in-chief of the Chinese Communist Party-backed tabloid the Global Times on Friday warned Evergrande that it was not "too big to fail," and it should not expect to be rescued.
New curbs halted property speculation
Evergrande was already the world's most indebted real estate firm when the Chinese government introduced strict lending curbsin August 2020 to cool the overheating property market.
China Evergrande, which is reliant on presales to shore up its income, has been hard hit by the subsequent property downturn. It has been forced to sell properties at a 25% discount.
Investors have made down payments on around 1.5 million properties, Bloomberg reported, citing data from December.
Many of those buyers have expressed concern on social media about whether they will get their money back after housing projects were suspended.
With material from DPA and Reuters
, Bloomberg News
Sep 17, 2021
(Bloomberg) -- Chinese stocks suffered their worst week in a month as Beijing’s move to tighten the screws on Macau casinos and fears of a potential collapse of China Evergrande Group underscored the risks of investing in the nation’s equities market.
A soft rebound on Friday was small consolation for investors, with Hong Kong’s Hang Seng Index and the mainland’s CSI 300 gauge still ending the week down more than 3% each. The HSI is trading near the lowest level in almost a year and few more down days could put the CSI in the same position.
“Risks are skewed to the downside amid the double whammy of macro weakness and regulatory uncertainty,” Morgan Stanley strategists including Laura Wang said in a research report. The Wall Street bank cut its targets for the HSI and Hang Seng China Enterprises Index by 4% while noting the difficulty in quantifying the impact of Beijing’s crackdown.
Traders had just started to wade back into the waters and look for bargains, betting that the worst of China’s regulatory crackdown may be over. Instead, what they got was Beijing unveiling a new round of measures on the gambling sector that wiped out nearly $20 billion in market value and fears of contagion from Evergrande’s debt crisis hitting property and banking sectors.
Sands China Ltd. tumbled more than 40% this week, leading declines among Macau casino operators, after the government said it was looking at appointing representatives to “supervise” the businesses. Authorities are also considering boosting local shareholdings and tightening controls on the distribution of dividends.
The renewed scrutiny added pressure to the gambling hub already struggling with years of slowing growth and hit by the Covid-19 pandemic. Bloomberg’s index of the six casino operators in the gambling enclave posted a 31% drop this week.
Despite perennial hopes for a rebound, the HSI is still among the world’s worst-performing primary indexes this year, this quarter and this week.
“There’s maybe been a feeling at the start of September that some of the pace of regulatory action has calmed down,” said James Cordwell, analyst at Atlantic Equities LLP. But events in recent days “reminded investors that the government still sees plenty of work to be done in tightening up regulation,” he said.
Evergrande Crisis
Meanwhile, pressure is growing on the government to head off systemic risk by helping to restructure Evergrande’s $300 billion pile of liabilities.
Worries that other Chinese property developers may run into similar financial troubles as Evergrande intensified after a unit of the indebted company said its onshore bonds were suspended from trading on Thursday.
Amid the uncertainty, the HSI’s property sub-index tumbled 8% this week, its worst performance since March 2020.
China’s Nightmare Evergrande Scenario Is an Uncontrolled Crash
Technology stocks managed to outperform the wider market Friday but also ended well down for the week, with the Hang Seng Tech Index dropping 4.4%.
Negative news continued to hang over the sector, including a Financial Times report that the government plans to break up Ant Group Co.’s Alipay lending business. Government calls for better protection of gig-economy worker’s rights also weighed on confidence, along with a renewed call for internet companies to stop blocking links of their rivals.
Alibaba Group Holdings Ltd.’s valuation dropped to a record, a sign that investors are “pricing a more sustained change in its profitability or growth prospects looking ahead,” Michaël Lok, chief investment officer at Union Bancaire Privée, said in a research note on Thursday.
Meanwhile, Tencent Holdings Ltd. briefly lost its place among the world’s 10 largest companies by market value on Thursday, which left no Chinese company in the list.
But as Friday’s uptick in stocks showed, some investors are still prepared to wager that cheaper valuations make Chinese stocks -- especially big technology names -- more attractive.
Beaten-down names in e-commerce and internet platforms still have appeal, said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management.
©2021 Bloomberg L.P.
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