Three Chinese regulators reassure global controllability after Evergrande summons for debt warning

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Evergrande group photo: CFP

The southern China’s Guangdong provincial government summoned the heavily indebted China Evergrande group on Friday evening after the Shenzhen-based real estate developer warned earlier today that it may not meet its obligations. financial.

Shortly after the news broke, three major Chinese financial regulators, in rare simultaneous remarks, reassured markets that the Evergrande issue is an individual case and should not be of concern to the capital market and the country’s real estate market.

In a filing on Friday with the Hong Kong Stock Exchange, Evergrande said it had received a request to perform its obligations under a guarantee in the amount of approximately $ 260 million. “In the event that the group is unable to meet its guarantee obligations or certain other financial obligations, this could lead creditors to demand an acceleration of repayment.

Shortly after the warning, the Guangdong government revealed that it was very concerned about the Evergrande problem and had called the company for talks.

At Evergrande’s request, in order to effectively defuse risks, protect the interests of all parties, and maintain social stability, the Guangdong government agreed to send a task force to Evergrande to urge the company to promote risk elimination, strengthen internal control management and maintain normal business operations, a statement issued by the Guangdong provincial government read Friday.

Photo of Xu Jiayin: VCG

Photo of Xu Jiayin: VCG

Xu Jiayin, or Hui Ka Yan, the founder of Evergrande, sold personal property in his latest effort to meet the company’s obligations. Xu sold 1.2 billion shares of the company on November 27, for a total value of HK $ 2.68 billion ($ 344 million).

But Evergrande still has not paid the coupons totaling $ 82.5 million due on November 6, which has kept investors on the fence to see if the company can meet its obligations before the end of a 30-day grace period. days Monday, December 6.

Regulatory security

In rare simultaneous announcements, the People’s Bank of China (PBC), the country’s central bank, the China Banking and Insurance Regulatory Commission (CBIRC), and the China Securities Regulatory Commission (CSRC) have all acted to reassure the markets that Evergrande is a case individual and does not represent the bigger picture.

The risks at Evergrande come mainly from its own mismanagement and indiscriminate expansion. The short-term risks facing individual housing businesses will not affect the normal medium to long-term funding function of the market, the PBC said in a late-night question-and-answer session on its site Internet,

Recently, domestic real estate sales, land purchases, financing and other behaviors have gradually returned to normal. Some Chinese real estate companies have started buying back foreign bonds, and some investors have also started buying foreign bonds. US dollar bonds of Chinese real estate companies, “the PBC statement said.

The authorities will continue to maintain communication with the relevant regulatory authorities in foreign markets and urge foreign bond issuers and their shareholders to strictly adhere to discipline and market rules, to properly manage their debt issues. ” in a legal and market-based manner, and to actively fulfill their statutory obligations. debt repayment obligations, according to the central bank.

Relevant departments will provide support and facilitation for companies to send funds to redeem and redeem foreign bonds under existing policy, the PBC revealed.

The PBC’s remarks indicate that there has been no major deterioration in the housing market and that the emergence of risks associated with some developers can be attributed mainly to their excessive expansion, said Yan Yuejin, research director. at the E-house China R&D Institute based in Shanghai. the Global Times Friday.

The CBIRC said that Evergrande’s failure to meet its guarantee obligations remains an individual case, which “will have no negative impact on the normal functioning of the banking and insurance industry in China.”

Financial debt represents around a third of Evergrande’s total debt, with a relatively dispersed structure and a low amount of financial investment.

In a similar tone, the CSRC said the spillover effects of the Evergrande incident on the capital market are under control.

At present, the A-share market is generally stable with high resilience and high activity. The operating financial indicators of listed companies and issuers of housing-related bonds are generally healthy, according to the securities regulator, and this will continue to support the reasonable and normal financing of real estate companies.

Despite the reassuring tone of the three major financial regulators, it was also seen as a red flag for real estate companies to take the debt issue seriously. It is likely that Evergrande will come under more stringent scrutiny, Yan commented.

“Evergrande’s announcement indicated an insufficiently serious attitude to the situation, which could have a negative influence. That is why she was summoned,” he said.

In Friday’s filing, Evergrande said that “in light of the current state of the company’s liquidity, there can be no assurance that Evergrande will have sufficient funds to continue to meet its financial obligations.”

Real estate companies, as Yan suggested, must take advantage of the gradual return to normalcy with home sales, land purchases and fundraising – thanks to the favorable wind of growth policy – to truly resolve their risks. debt.


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