China's Evergrande Group crisis

[mullokintyre]

Seems that Evergrande shares hve been placed in a trading halt (again).

From Indian Business Insider

Share of embattled property developer China Evergrande Group were suspended from trading on Monday, a filing from the Hong Kong stock exchange showed.



Trading was also halted in shares of its property services unit, Evergrande Property Services Group Ltd, and electric vehicle unit, China Evergrande New Energy Vehicle Group Ltd, exchange filings showed.


The filings gave no further details.


Evergrande, the world's most indebted developer with over $300 billion in liabilities, has been struggling to repay its suppliers and creditors and complete projects and homes.

Its flagship unit Hengda Real Estate Group Co Ltd secured approval from its onshore bondholders over the weekend to delay a coupon payment due last September to September 2022, according to the company lawyer's filing to the Shenzhen Stock Exchange on Sunday.


Hengda held a meeting with creditors of the 4 billion yuan ($629 million) 2025 bond on March 18-19 to approve the payment of interests incurred between September 2020 to September 2021 to be made in September 2023.

Evergrande has so far avoided technical bond defaults onshore, though it has missed payments on some offshore bonds.


Evergrande shares traded at HK$1.65 before the suspension. They have gained 3.8% this year after plunging 89% in 2021.

Wonder what it is this time?
Mick

 

[Dona Ferentes]

Wonder what it is this time?

Snowballing?

China Real Estate Information Corporation reported that home buyers had stopped mortgage payments on at least 100 uncompleted projects in more than 50 cities on Wednesday. What was particularly worrying was that the numbers indicated a rapidly growing trend, up from 28 projects on Monday and then 58 projects on Tuesday.

There are three connected reasons mortgagees could be boycotting payments.

First, there are concerns that shaky property developers will go out of business before the projects are completed. Defaults and delayed debt repayments have basically continued for a year, since the problems surrounding Evergrande.

Nomura economists this week estimated that Chinese developers have only delivered about 60 per cent of homes they pre-sold between 2013 and 2020 – a period in which Chinese mortgage debt rose by $US4 trillion.

Second, there are concerns that banks, which have an estimated $US6.8 trillion of mortgages on their books and another $US1.9 trillion in loans to developers, may crack under the weight of this property debt. A series of bank runs in recent weeks on lenders that froze developers have raised concerns about the fragility in this sector.

Finally, there are obvious concerns that recent falls in house prices – down for a 10th-straight month in June – mean properties are worth less than what consumers paid for them.

 

[mullokintyre]

Snowballing?

China Real Estate Information Corporation reported that home buyers had stopped mortgage payments on at least 100 uncompleted projects in more than 50 cities on Wednesday. What was particularly worrying was that the numbers indicated a rapidly growing trend, up from 28 projects on Monday and then 58 projects on Tuesday.

There are three connected reasons mortgagees could be boycotting payments.

First, there are concerns that shaky property developers will go out of business before the projects are completed. Defaults and delayed debt repayments have basically continued for a year, since the problems surrounding Evergrande.

Nomura economists this week estimated that Chinese developers have only delivered about 60 per cent of homes they pre-sold between 2013 and 2020 – a period in which Chinese mortgage debt rose by $US4 trillion.

Second, there are concerns that banks, which have an estimated $US6.8 trillion of mortgages on their books and another $US1.9 trillion in loans to developers, may crack under the weight of this property debt. A series of bank runs in recent weeks on lenders that froze developers have raised concerns about the fragility in this sector.

Finally, there are obvious concerns that recent falls in house prices – down for a 10th-straight month in June – mean properties are worth less than what consumers paid for them.

Just to add to the problems, it seems that (some) of the peasants are revolting
From Zero Hedge

Chinese residents are increasingly walking the walk. First, it was the violent outcry against mandatory covid vaccines that put an end to Beijing's desire to forcibly innoculate all Beijing residents in just 48 hours - a feat not all of America's armed militias have been able to achieve, and now it's a grassroots push for what appears to be a debt jubillee as millions of homeowners suddenly stop paying their mortgages, a shocking move that has sent shockwaves across China's capital markets and has sparked panic within China's political leadership circles.

As Bloomberg reports overnight, a rapidly increasing number of "disgruntled Chinese homebuyers" are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system as countless mortgages default.

According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

The boycotts raise the risk of mortgage defaults, a new set of troubles for banks that are already squeezed by exposure to ailing property developers. Mortgages make up almost 20% of total bank loans outstanding, amounting to about 39 trillion yuan ($5.8 trillion).

In a rather panicked note from Morgan Stanley economist Zhipeng Cai (available to pro subscribers), he addresses the topic of widespread mortgage nonpayment and writes that "we estimate 188mn sqm (1.7mn units) are at risk. We expect local governments will be urged to help completion, but a national bazooka solution remains difficult in near term."

His warning: "Non-linearity is the key to watch."

To others, however, such as Xie, this is an exaggeration. According to the Bloomberg reporter, "it’s reasonable to argue that this is unlikely the start of something as bad as the US subprime crisis. Unlike lending to developers, mortgages have been regarded as the safest assets on banks’ balance sheets, as Betty Wang, an economist at ANZ, pointed out. Mortgage defaults have been rare, and rising home prices over the years have increased the value of banks’ collateral."

Some data: the average non-performing mortgage-loan ratio of the six largest banks, which accounted for 68% of China’s total home loans, was only 0.38% in 2021, compared with an NPL ratio of 2.73% for developers, according to Wang’s calculations.

These things always seem to develop very quickly in China, and just as quickly get killed off.
Mick

 

[mullokintyre]

The "I aint gunna pay no more" paradigm seems to be spreading in China.
From Zero Hedge

In a jarring case study of what happens when a ponzi scheme goes into reverse, hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers including China Evergrande Group still owe them money, Caixin reported, citing a statement it received from a supplier Tuesday.

Similar to homebuyers who have taken a stand and refuse to pay for properties that remain uncompleted, one group of small businesses and suppliers circulated a letter online saying they will stop repaying debts after Evergrande’s cash crisis left them out of pocket.

“We decided to stop paying all loans and arrears, and advise our peers to decline any requests to be paid on credit or commercial bill,” the group said in the letter dated July 15, which was sent to the developer’s Hubei office. “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis.”

As Bloomberg oh so perceptively puts it, "the payments protest is the latest sign of how a movement by homebuyers to boycott mortgages on unfinished homes in China is spreading to affect other sectors in the economy."

 

[rcw1]

Good morning,
Been reported today (29/11/22):

Evergrande has sold land earlier earmarked for its headquarters in the southern tech hub Shenzhen for $1 billion, according to an official document, as it fights for survival. The real estate behemoth has been involved in restructuring negotiations after racking up $300 billion in liabilities following Beijing’s crackdown on excessive debt and rampant speculation in the property sector.

The 10,377-square-metre (111,700-square-foot) land in Nanshan district was sold to Shenzhen Anhe No. 1 Real Estate Development Co. for 7.5 billion yuan, according to land transaction records published by the city’s Public Resource Exchange Centre on Saturday.

Evergrande has scrambled to offload assets in recent months and its financial situation has worsened considerably since last year.

Its troubles are emblematic of the crisis rippling across China’s massive property sector, with smaller companies also defaulting on loans and others struggling to raise cash after Beijing imposed widespread lending curbs in 2020.

Major developers including Evergrande have failed to complete projects, sparking mortgage boycotts and protests from homebuyers. China’s banking regulator earlier this month unveiled sweeping measures to support the property sector, including credit support for distressed developers to ensure the completion and handover of projects to homeowners.

Have a very nice day, today.

Kind regards
rcw1

 

[mullokintyre]

Evergrande issues have gone quiet, but the fundamental problems that caused it have not.
From WSJ and Zero hedge

The last time we checked in on China's debt, the IIF calculated that it was just shy of 300% its GDP, a record high, and more than double where it was a decade ago. So to say that China has a debt problem isn't exactly a surprise.



What may surprise, however, is that as China has been busy trying to sweep all this massive, growth-crushing debt under the rug (yes, there is a reason why the Politburo's latest GDP target was a disappoint 5% and it begins with "d" and ends with "ebt"), it is starting to run out of hiding spaces and as the WSJ reports overnight, China's economy is "being weighed down by the colossal debts of its local governments, which swelled during the pandemic and are starting to come to a head" and nowhere is this more visible than at the city level.


Xi Jinping’s now defunct zero-Covid campaign buried cities under billions of dollars in unplanned expenditures for mass testing and lockdowns. At the same time, Beijing's crackdown on excessive property-market leverage led to a sharp drop in land sales, depriving cities of one of their biggest revenue sources.

As a result, the WSJ notes that according to S&P Global calculations, two-thirds of local governments are now in danger of breaching unofficial debt thresholds set by Beijing to signify severe funding stress, with their outstanding debt exceeding 120% of income last year.

About a third of China’s major cities are struggling to pay just the interest on debt they owe, according to a survey by Rhodium Group, a New York-based research firm. In one extreme case, in Lanzhou, the capital city of Gansu province, interest payments were the equivalent of 74% of fiscal revenue in 2021. This is rapidly approaching the infamous "Minsky Moment" now that debt has moved beyond "mere" Ponzi financing levels.

Mick

 

[Dona Ferentes]

Ah, yes, the Minsky moment.

This is rapidly approaching the infamous "Minsky Moment" now that debt has moved beyond "mere" Ponzi financing levels.

 

[Knobby22]

Ah, yes, the Minsky moment.

A Minsky moment is a sudden, major collapse of asset values which marks the end of the growth phase of a cycle in credit markets or business activity.

 

[Dona Ferentes]

Silicon Valley Bank, for example?

(Needs its own thread)

 

[waterbottle]

Someone should start a thread on the number of financial instos that are about to blow up with tightening credit

 

[mullokintyre]

Getting back to Evergrande ...
fromZero Hedge

Two years after it was halted, left for dead, and effectively bankrupted in a controlled demolition, China's one-time property giant, Evergrande, reported long-delayed results and boy were they a whopper: they showed that in 2021 and 2022, the company generated mindblowing losses of $113 billion, on $340 billion in liabilities.

The losses - The company’s first since its 2009 listing, and a sharp reversal from the 8 billion yuan profit in 2020 - showed “the existence of material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern”, Evergrande said in a stock exchange filing, which of course is irrelevant since much of the defaulted company's capital structure has been in some state of restructuring ever since 2021.

Once China’s largest real estate company, Evergrande was the match that lit China's property crisis in 2021 when it was found to be drowning in more than $300 billion in liabilities, sparking a nationwide property crisis that had global ramifications and sent the world's largest asset class (according to Goldman) reeling and plunging China's economy into a brutal slowdown from which it has been unable to recover to this day.
Trading in the company’s Hong Kong-listed shares has been suspended since March 2022.

Back then, Evergrande said that it would not be able to publish its 2021 audited results within the timeframe required by Hong Kong’s listing rules, blaming the delay on “a large number of additional audit procedures” and the Covid-19 pandemic.

The company said on Monday it had suffered a net loss of 686.22 billion yuan in 2021 and 125.81 billion yuan in 2022, in long-delayed Hong Kong stock exchange filings that could bring Evergrande closer to a resumption of trading.

Evergrande saw its sales plummet during the crisis: according to Bloomberg, revenue plunged by half in 2021 to about 250 billion yuan, before falling further last year to 230 billion yuan, missing the average estimate of six analysts surveyed by Bloomberg.

The developer’s debt pile meanwhile continued to balloon, with total liabilities reaching 2.58 trillion yuan at the end of 2021, or almost $360 billion, on soaring undelivered projects. That figure fell slightly to 2.44 trillion yuan as of December last year.

The biggest liabilities last year were from trade and other payables, which stood at around 1 trillion yuan as of December. Current borrowings fell slightly from a year earlier to 587 billion yuan.

“The results are not encouraging at all,” said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. While not a game changer, they confirm how the company has been in deep distress and struggling with operations and repayments, Meng said.

So it has still not relisted, and after such heavy losses, there is no guarantee it will not be posting further losses.
Mick

 

[houtman]

A beautiful set of numbers, as Keating once opined.


“The results are not encouraging at all,” said Ting Meng, a senior credit strategist at Australia & New Zealand Banking Group. a master of understatement.

It's going to be an interesting 12/24 months for Chinese property.

I'd expected that the Chinese Gov would have sorted the Evergrande situation by now, it being the international face of the property crisis.

I feel for the people that would be caught up in this on the ground level.

 

[finicky]

Sum Ting Wong
Warms my heart

 

[mullokintyre]

It would seem that Evergandes problems are contagious.
from Evil Murdoch Press

First, two years ago, there was Evergrande; now another Chinese property developer that is virtually unknown outside Asia has fallen behind on its bond payments, sending fresh fears through jittery global markets.
This time the builder on the brink is Country Garden, which last year sold almost 700,000 flats and houses, more than any other Chinese developer. However, last week it failed to pay the $US22.5 million coupon owed to its international bondholders, reigniting the cashflow worries that have dogged China’s property industry in recent years.

Those fears deepened on Monday when Country Garden moved to suspend trading of its 11 onshore bonds. The news sent its shares, which are listed in Hong Kong, tumbling by 18 per cent to their lowest price on record.

The concerns about China and its property industry seeped into other parts of the financial market, affecting the prices of commodities, currencies and even mining stocks listed in London.
China’s property industry makes up between a quarter and a third of the country’s economy, which is the second largest in the world behind that of the United States. If the property industry goes belly-up, economists think it could be tough for the Chinese economy not to follow suit.

Country Garden was set up in 1992 by Yeung Kwok Keung in Beijiao, a town on the outskirts of Foshan, the 14th largest city in China. The company, like a number of others, cashed in on the property boom that has gripped China since the Nineties, when a series of reforms ratcheted up the nation’s drive to urbanisation. In 2018 it was worth $US50 billion; now it is valued at less than $US3 billion.

mick

 

[Dona Ferentes]

.
And , higher up the safety ladder

Which on current pricing, will return an annualised 2388 per cent, if you buy it at 9 and you get paid 100 in January 2024.

chances of that happening? Low to Xi.

 

[Dona Ferentes]

It would seem that Evergandes problems are contagious.

... and flowing here?
.
Analysts predict the impact from a potential default by developer Country Garden would be “worse than Evergrande’s collapse”, as it has four times as many projects.

Risland Australia—a subsidiary of the debt-ridden Hong Kong-listed developer—is behind two large-scale residential estates with a planned total of 10,000 housing lots in Sydney and Melbourne.

The undeveloped 150ha portion of one of them—its Windermere estate in the Victorian capital’s west—already has been put on the block with a $250-million price tag.

“This sale allows Risland to rebalance our portfolio and continue to seek out new opportunities to operate in the important Australian market,” Risland chief executive Guotao Hu said in a statement, with no mention of its parent company’s financial woes.

Risland’s other major development is Wilton Greens, a $2-billion, 433ha masterplanned estate in Sydney’s south-west.

... the quote in orange is a remarkable bit of chutzpah !!

 

[mullokintyre]

ABC is reporting evegrande has filed for bankruptcy
China's second-largest property developer, the embattled China Evergrande Group, has filed for Chapter 15 bankruptcy protection in New York.

MICK

 

[Dona Ferentes]

Ambrose Evans-Pritchard writes in the Tele.

a bigger picture is emerging, property is an important but not the only problem:

"....China’s $US60 trillion property edifice is by far the largest asset class in the world. It accounts for half of the world’s entire property sales, an astonishing figure given that China’s workforce is already contracting and net migration from the countryside has stopped.

"The developers have debts of $US5 trillion. By comparison, this is six times greater than America’s $US800 billion subprime property debt on the eve of the Lehman crisis.

"They rely heavily on the $US3 trillion “trust” segment of the shadow banking nexus known, which has no lender of last resort. These trusts are starting to blow up. The $US140 billion Zhongzhi Empire is the most disturbing casualty so far.

"The property bubble is the Ponzi scheme that keeps China’s local governments afloat.

"They rely on property for 38 per cent of total revenue, mostly from land sales. These sales have collapsed. The finance ministry says local government income fell 21 per cent in the first half of 2023.

"This must lead to a severe fiscal squeeze unless Beijing comes to the rescue with a huge stimulus package stimulus. The signs are that Xi Jinping is still reluctant to do so..... "

.... and a fawning media note entitled “Clarifying the Eight Misconceptions about Expanding Domestic Demand” by his Leninist technocrats wouldn't help, if that is Xi's principal source that drives policy

 

[Garpal Gumnut]

... and flowing here?
.
Analysts predict the impact from a potential default by developer Country Garden would be “worse than Evergrande’s collapse”, as it has four times as many projects.

Risland Australia—a subsidiary of the debt-ridden Hong Kong-listed developer—is behind two large-scale residential estates with a planned total of 10,000 housing lots in Sydney and Melbourne.

The undeveloped 150ha portion of one of them—its Windermere estate in the Victorian capital’s west—already has been put on the block with a $250-million price tag.

“This sale allows Risland to rebalance our portfolio and continue to seek out new opportunities to operate in the important Australian market,” Risland chief executive Guotao Hu said in a statement, with no mention of its parent company’s financial woes.

Risland’s other major development is Wilton Greens, a $2-billion, 433ha masterplanned estate in Sydney’s south-west.

... the quote in orange is a remarkable bit of chutzpah !!

Border Security : You have ticked the NO box for Food.
Passenger. : Birds Nest not food.

gg

 

[Dona Ferentes]

Property developer China Evergrande Group plunged 87 per cent as it resumed trading in Hong Kong after ending a 17-month trading halt.

The world’s most indebted company unveiled a $4.5 billion loss in the first half after a lengthy debt restructuring process.

Shares are trading at HK4.4¢.