Embattled Evergrande Comes to Terms With Creditor Over Asset Freeze

The day after several banks were reported to have stopped offering mortgages for unfinished units at China Evergrande’s Hong Kong residential projects, the mainland’s most-indebted developer scored a rare win by resolving a dispute with one of its creditors.

China Guangfa Bank earlier this month had won a court order to freeze RMB 132 million ($20 million) in assets in the form of a project loan extended by the bank to Evergrande. But the Shenzhen-based developer announced on its website Thursday that the two parties had “properly resolved the matter after full communication”.

Bloomberg on Wednesday reported that multinational HSBC, state-backed Bank of China (Hong Kong) and two of Hong Kong’s largest local lenders, Hang Seng Bank and Bank of East Asia, had suspended new mortgages for Evergrande’s two projects under construction in Hong Kong after re-evaluating the risks of the loans. The South China Morning Post said the local branch of China’s largest lender, ICBC, had ceased lending as well.

The projects in question are the 414-unit Vertex in Cheung Sha Wan and the 1,228-unit Emerald Bay II in Tuen Mun, where Evergrande last year had dangled discounts to spur sales during the COVID-19 crisis.

Legal Action Doused

Evergrande chairman Hui Ka Yan had notified the Hong Kong stock exchange on Monday that the group was considering legal action against Guangfa Bank for “abuse of the pre-litigation asset preservation process” regarding the project loan, which comes due in March 2022.

In addition to the truce with Guangfa, Evergrande got some welcome news Wednesday when the Housing and Urban-Rural Development office (MOHURD) of Shaoyang in southwestern Hunan province told the developer it could resume presales at its housing projects in the city. Sales activity had been suspended earlier this week over a regulatory infraction.

Last month, Evergrande made a show of repaying a $1.47 billion offshore bond a week ahead of its due date as a sign of the group’s commitment to taming its balance sheet. The developer also raised some quick cash by selling a $570 million stake in its Hong Kong-listed internet division, HengTen Networks Group, and a nearly $400 million interest in smaller developer Calxon.

Those asset sales came as Evergrande reeled from a ratings downgrade by Fitch and a report that several large mainland banks had restricted the group’s access to further credit.

Struggling at the Top

The credit scare for Evergrande comes despite the company having maintained its position as China’s top developer in 2020, with sales growing even more quickly during the pandemic. However, with one of the mainland’s highest debt loads, the company’s profits slid by more than a quarter.

After frightening the region’s financial community with a plea for a bailout last year, the group joined the shift towards fiscal prudence after mainland authorities introduced their Three Red Lines policy to restrict credit to indebted developers during August 2020.

According to an annual financial statement released at the end of March, Evergrande reduced its total debt by 14 percent in the second half of last year to RMB 717 billion as of 31 December. By the end of March, those obligations had been shrunk still further to RMB 674 billion.

But the cash-strapped group has given off a whiff of desperation in recent days, with reports that Evergrande is eyeing plans to raise funds through listings of its bottled water and tourism enterprises.