Evergrande Says Hainan Demolition Order Applies ‘Only to 39 Buildings’

China Evergrande Group on Tuesday confirmed earlier accounts that Hainan officials had ordered the debt-saddled developer to demolish several dozen buildings at its Ocean Flower Island resort megaproject in the province.

In a filing with the Hong Kong stock exchange, the Shenzhen-based company assured that the decision by the Danzhou Comprehensive Administrative Law Enforcement Bureau related “only to 39 buildings” at a land plot on the No.2 island of the Ocean Flower development, which consists of hotels, theme parks and convention centres on five artificial islands off Hainan Island’s west coast near the city of Danzhou.

“The company will actively communicate with the authority in accordance with the guidance of the decision letter and resolve the issue properly,” Evergrande chairman Xu Jiayin said in the exchange filing.

The world’s most leveraged developer also reported Tuesday that its contracted sales of properties during 2021 reached RMB 443.02 billion (now $69.7 billion), down 39 percent from the previous year, with a contracted sales area of 54,265,000 square metres (584.1 million square feet). After a trading halt on Monday, Evergrande shares rose 1.3 percent in Tuesday’s session as a technical recovery boosted China property stocks broadly.

Environmentally Challenged

A penalty notice issued by Hainan authorities and received by Evergrande on 30 December ordered the 39 under-construction buildings spanning 434,941 square metres (4,681,666 square feet) to be demolished within 10 days, citing environmental violations and illegal construction.

The Global Times reported that Hainan officials in April 2019 investigated violations of laws and regulations relating to Ocean Flower Island and imposed an administrative fine of RMB 215 million.

In a WeChat post late Monday addressed to homeowners, Evergrande said the demolition order did not apply to 60,567 apartments already sold to buyers after the developer sank RMB 81 billion into Ocean Flower Island over the past six years.

Evergrande added that since 2017 the company has been actively rectifying environmental issues in accordance with requirements for marine ecological restoration proposed by inspectors at Ocean Flower Island.

Situated in one of China’s few tropical regions, the Ocean Flower megaproject features conference centres, exhibitions halls, theme parks, shopping malls and accommodation, including the 405-room Hilton Hainan Ocean Flower Island.

Debt Drama Continues

Evergrande’s latest disclosures come after the group missed coupon payments totalling $255 million on two dollar-denominated notes on Tuesday of last week, though both sets have a 30-day grace period before slipping into formal default.

Evergrande is staring at an offshore debt pile of close to $20 billion, including coupon payments of $487.7 million due this month, as China’s developers confront $197 billion in liabilities coming due in January alone, according to Bloomberg.

In a fresh public-relations debacle, Evergrande last Friday notified investors in its wealth management products that they could expect RMB 8,000 ($1,256) per month in principal payment for three months starting in January, regardless of when their investment matures, Reuters reported.

The delay triggered protests on Tuesday of this week, with a crowd of roughly 100 people shouting “Evergrande, return our money!” outside the company’s offices in Guangzhou, the news agency said.