China’s Evergrande faces investor protests as liquidity crunch worsens

China's Evergrande has hired restructuring advisers and warned that its liquidity is under "tremendous pressure" from collapsing sales as China's most indebted property developer faces protests by home buyers and retail investors.

In a statement to the Hong Kong stock exchange, Evergrande disclosed that its monthly sales had almost halved from June to August, falling from 71.6 billion renminbi (€9.3 billion) to Rmb38.1 billion.

While September is usually a bumper sales month for developers, Evergrande, which last month warned over the risk of default because of a spiralling liquidity crisis, blamed “negative media reports” for depressing confidence in the company from potential property buyers.

The company said it had hired Houlihan Lokey and Admiralty Harbour Capital to evaluate its liquidity and “explore all feasible solutions” to ease its mounting debt crisis.

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Liabilities

Evergrande, based in Shenzhen in southern China, is saddled with almost Rmb2 trillion of total liabilities, raising concerns that any failure to repay its debts could pose a broader risk to the country’s financial system and international bond markets, where it has borrowed heavily.

The group’s mounting credit woes have coincided with a Chinese government regulatory drive against big technology groups, the real estate industry and other sectors. On Monday, the country’s housing ministry announced a three-year inspection campaign to tighten regulation of the property sector.

Last year, the government implemented a strict “three red lines” policy aimed at reducing developers’ leverage, which China’s banking regulator has labelled the country’s biggest financial risk.

In recent days, Chinese social media platforms have been flooded with complaints from property buyers worried that their new homes would not be completed and from investors who bought wealth management products sold to fund Evergrande’s real estate projects.

Evergrande relies heavily on customers paying for flats before the projects are completed.

Slashing costs

To reduce its debts, Evergrande is seeking to slash costs and sell assets including stakes in an electric vehicles business and a property services group, both of which are listed in Hong Kong, as well as a flagship property in the territory.

Evergrande’s Hong Kong-listed shares fell as much as 11 per cent on Tuesday, bringing their total decline for the year to date to about 80 per cent. Shares of Evergrande New Energy, the electric car company, dipped 22 per cent. – Copyright The Financial Times Limited 2021