Contagion fears as loans to China’s Evergrande, the world’s most heavily indebted developer, are drawn down

At least two of China Evergrande Group’s largest non-bank creditors have requested immediate repayment of some loans, according to people familiar with the matter, adding to the liquidity burden of the world’s most heavily indebted real estate developer.

he two creditors are trust companies that pool funds from wealthy private investors and are an important source of funding for Evergrande and other Chinese developers.

The trusts have been sending repayment notices to Evergrande for the past two months after worries about the property giant’s financial health, people said, asking not to be identified as the details are private. Fiduciary loans often include terms that allow creditors to seek early repayment if certain conditions are met, such as sales targets, rating downgrades, or legal action.

One of the trusts has so far only received a small portion of the money Evergrande owes, one of the people said. The amount of the loans could not be determined immediately.

It’s the latest sign of Evergrande struggling to get $ 305 billion in debt, and the developer’s bonds have fallen to levels suggesting investors are bracing themselves for default, and the top three publicly traded companies have since In mid-February, combined lost more than $ 110 billion in market value. While Chinese regulators have urged the company to resolve its debt problems, the government has so far been silent about whether it will provide financial assistance.

Evergrande did not immediately respond to a request for comment.

Trusts were a major source of funding for Evergrande, accounting for about 40 percent of its borrowing in late 2019, the last year the company released the figures.

While developer trust lending has slowed over the past year, Evergrande has approximately 46 billion yuan ($ 6 billion) of such loans due in 2021, according to Yongyi Trust Research. Approximately 11 billion yuan will be due in the fourth quarter.

Failure to repay could cause at least one trust to reclaim all of its loans, said a person familiar with the matter, although it is unclear how Evergrande would react. Legal proceedings against the company and its affiliates will be centralized in Guangzhou, a city in Evergrande’s home province of Guangdong, making it difficult for creditors to freeze assets or seek repayment through other local courts.

Evergrande warned this week that it could default on loans if its efforts to raise cash are inadequate. Despite selling stakes in valuable assets and providing steep discounts on apartment sales, the developer reported a 29 percent drop in profits for the first half of the year. The real estate and EV units posted losses while some vendors stopped working on projects due to unpaid bills.

“The group will do its utmost to continue operations and endeavor to deliver the properties to clients as planned,” said Evergrande.

The recent riots have drawn government attention. Beijing instructed Guangdong authorities to work out a plan to manage the developer’s mountain of debt, people familiar with the matter said last month. The provincial government is coordinating with banks, other creditors and potential buyers of Evergrande’s assets.

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About Natalee Broderick

Natalee Broderick

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