Indebted mainland developer China Evergrande Group was forced to deny reports that it was pleading for a bailout yesterday, after a document circulating on Chinese social media indicated that the firm was pleading for government support to avoid financial catastrophe.
A letter addressed to the Guangdong provincial government, and bearing the chop of its primary mainland operating unit Hengda Group, along with other documents, included a request by Hengda to the authorities for support in meeting a RMB 143.7 billion ($21 billion) commitment due by the end of January, However, Evergrande’s chairman denounced the materials as fraudulent.
“The relevant documents and pictures are fabricated and are pure defamation, causing serious damage to the Company’s reputation,” Evergrande boss Xu Jiayin (who also goes by the Cantonese name Hui Ka Yan), said in a statement to the Hong Kong exchange. “The Company strongly condemns such acts and has reported the case to the public security authorities. The Company will take all legal actions to protect the legitimate rights and interests of the Company.”
The emergence of the letter dated 24 August and seen by Mingtiandi, as well as attached documents, including a list of hundreds of financial institutions that the company has borrowed from, and Evergrande’s denial today, come as the company has both warned of earnings shortfalls and made major investment commitments in recent weeks.
Local Listing Languishes
In its letter of appeal, Evergrande explains that, as part of a long-standing plan to achieve a mainland listing, Hengda must repay to investors RMB 130 billion in principal, plus fees of RMB 13.7 billion, if it fails to make it to a local bourse by 31 January next year.
Evergrande’s first announced in 2016 that it would seek a back-door listing on the Shenzhen exchange, and subsequently sold stakes in that venture to investors. The letter to the local government requests assistance in allowing that listing plan to move forward, even against China’s long-standing informal ban on listing new real estate companies on local exchanges.
Complicating matters for the developer, which has long been known for running some of China’s highest leverage levels, is a government initiative launched last month which aims to curb bank lending and bond issues for indebted developers. Such restrictions could easily restrict Evergrande’s access to cash, should it need to come up with funds to reimburse investors in its listing plan by early next year.
In the letter to the government, the writer warns that, should Hengda’s listing plan be thwarted, it could trigger defaults by Evergrande Group, which in 2019 was China’s largest developer by sales attributable to shareholders, and could lead to widespread unemployment and other risks.
Evergrande’s original deadline for achieving its local listing had been 31 January 2020, however the company announced in January of this year that it had agreed with its investors to extend that target for an additional year.
Long known for its daring debt levels, Evergrande has continued to spend on acquiring new projects, even in recent weeks, despite net income falling by 46 percent to RMB 14.7 billion in the first six months of 2020, compared to the same period last year.
In April, when it cut its 2020 earnings projections nearly by half, Evergrande had promised to control spending this year to reduce its debt levels.
Despite those pledges, earlier this month the developer agreed to spend HK$4.7 billion ($606 million) to acquire a Hong Kong residential plot from Henderson Land, at a price that some analysts described as well above market rates.
Also during September, Evergrande bid RMB 2.3 billion to acquire a mixed-use site in Shanghai’s Hongkou district.
Outside of the real estate world, Evergrande has been spending aggressively to enter the electric car market, racking up a RMB 2.68 billion loss on its China Evergrande New Electric Vehicle Group (formerly Evergrande Health) during the first six months of this year.