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China's Evergrande Group crisis

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from SCMP

China Evergrande suffers new blow as curbs on offshore bond sales raise survival alarm, hobble US$20 billion debt workout​

  • Troubled developer did not meet requirements to sell new offshore debt, saying its onshore unit Hengda is being investigated by authorities
  • The firm earlier cancelled creditor meetings scheduled for this week, citing weak home sales and the need to reassess restructuring terms
 
just added extra CLW ( cum dividend )

thank you China

( sure it's going to be tough near/mid term , but what are you going to do move into tents and vans ??? )
 
In perhaps a precursor to Evergrande's final demise into bankruptcy, the Chairman of Evergrande has been arrested.
1695955633005.png
It is interesting that the translation called his misdemeanors "illegal crimes", rather than just crimes.
It would suggest that perhaps in China atleast, some crimes are not illegal.
Mick
 
I have been doing a lot of research recently and have become convinced that the inevitable Chinese real estate market collapse will be the catalyst that causes the next GFC, which will be far more destructive than the 2008 GFC. The CCP has been trying to sweep this house of cards under the rug for a long time but like all houses of cards it is destined to fall. Evergrande has become the public face of this crisis in the west but the problems run much deeper.
 
greggles said:
I have been doing a lot of research recently and have become convinced that the inevitable Chinese real estate market collapse will be the catalyst that causes the next GFC, which will be far more destructive than the 2008 GFC. The CCP has been trying to sweep this house of cards under the rug for a long time but like all houses of cards it is destined to fall. Evergrande has become the public face of this crisis in the west but the problems run much deeper.
Click to expand...
Greggles, how do you see the contagion into the international economies? I am hoping that it will be more like the Japanese real estate failure of 1991 to 1999.
 
Knobby22 said:
Greggles, how do you see the contagion into the international economies? I am hoping that it will be more like the Japanese real estate failure of 1991 to 1999.
Click to expand...

I think the collapse of the Chinese real estate market will have a huge effect on global market confidence and on the Chinese economy as a whole. It will also create significant social unrest in China. The market will not just shake this off. Asian markets will correct and turn bearish and western markets will follow suit.
 
Knobby22 said:
Greggles, how do you see the contagion into the international economies? I am hoping that it will be more like the Japanese real estate failure of 1991 to 1999.
Click to expand...
... horrifically

first there is the sheer size of the entity concerned
now IF it was contained completely in China/Hong Kong it would be pretty bad , but it isn't , foreign investors found a way to get a piece of the action , either via direct investment ( property or buying their corporate debt ) or by gaining exposure to suppliers of good and services to Evergrande

please note we are still talking Evergrande ,

then we have the various Evergrande rivals who will faces harsher distrust of their financials , issues with suppliers of goods and services ( who may or may not also be on the edge of failure AND face tighter scrutiny on their ability to raise finance )

now this is still mostly talking about contagion in China ( apart from the foreign investment )

once it seeps into the market the Evergrande strategies ( selling off the plan , keeping high levels of leverage , delayed payment of invoices ) are widely adopted by the construction/property development industry throughout the developed world ... how is credit availability going to look ??

if you do decide to invest in the corporate debt market , where do you dabble ??

into the banks financing these property giants , maybe the companies that rely on the viability of the property projects to earn income , a different property developer ???

but the good news is , the world has much bigger problems , currently
 
HSBC takes $500 million hit on Chinese real estate and warns of risk of ‘further deterioration’

Hong Kong CNN —

HSBC warned Monday that China’s property market has “potential for a further deterioration” as it reported profits that fell short of expectations, partly because of a $500 million charge to cover potential losses on commercial real estate loans.
Click to expand...


This has taken far longer to play out than I initially thought, but the Chinese government has been busy bailing out the sinking ship. No company is going to want to dwell on a $500 million writedown but to say that there is "potential for further deterioration" speaks volumes about the direction in which this crisis is heading.
 
Craton said:
@greggles Sure has taken awhile. Not sure when the "ghost cities" of China was first mentioned, as per OP certainly was noted back in Sep/Oct 2021.

China has at least 65 million empty homes — enough to house the population of France. It offers a glimpse into the country's massive housing-market problem.​


Writing was well and truly on the wall IMHO.
Click to expand...

65 million empty homes is simply astonishing. I have no doubt that the quality of construction is mostly substandard. While Australia has a property market with far more demand than supply, China has the opposite problem with supply far outstripping demand. This will inevitably lead to lower prices as fire sales push market prices down.

Is it any wonder Chinese retail investors are turning to gold in droves? It's probably the only place left for them now.
 
greggles said:
65 million empty homes is simply astonishing. I have no doubt that the quality of construction is mostly substandard. While Australia has a property market with far more demand than supply, China has the opposite problem with supply far outstripping demand. This will inevitably lead to lower prices as fire sales push market prices down.

Is it any wonder Chinese retail investors are turning to gold in droves? It's probably the only place left for them now.
Click to expand...
Wonder how long it will take the CCP to do a Roosevelt force its cits to hand over their gold at a fraction of its value. Does two things- forces them to invest in something else (like housing for instance?) , plus it greatly inflates the CB store of gold if they want to create a new reserve currency backed by gold..
Mick
 
greggles said:
65 million empty homes is simply astonishing. I have no doubt that the quality of construction is mostly substandard. While Australia has a property market with far more demand than supply, China has the opposite problem with supply far outstripping demand. This will inevitably lead to lower prices as fire sales push market prices down.

Is it any wonder Chinese retail investors are turning to gold in droves? It's probably the only place left for them now.
Click to expand...
I Think the whole ghost cities problem in China is a brain fart that went wrong, that's my guess.
When we went there in 2018 and I looked out of the plane coming into Beijing, it seemed to make sense, as there were sattelite townships about 100km apart.
Then when I put that together with the fact that when Mao took over he gave the peasants small land holdings and Xi had committed to urbanising everyone over the next few years, it at that moment made sense broad acre farming, get rid of the small fenced paddocks.
Maybe the peasants aren't playing ball?
 
From Bloombergs
1700788291970.png
Country Garden Holdings Co. and Sino-Ocean Group have been included on China’s draft list of 50 developers eligible for a range of financing support, according to people familiar with the matter, signaling a pivot by Beijing to help some of the nation’s most distressed builders.

CIFI Holdings Group Co., another builder that has missed debt payments, was also included on the so-called white list, the people said, asking not to be identified because the matter is private. Regulators are set to finalize the roster and distribute it to banks and other financial institutions within days, the people said, adding that some details could change.
The Zero hedge take on all this
CIFI Holdings Group, another builder that has missed debt payments, was also included on the white list according to Bloomberg, which adds that regulators are set to finalize the roster and distribute it to banks and other financial institutions within days.

The inclusion of distressed builders such as Country Garden, which missed payments on a dollar bond for the first time last month, underscores regulators’ shifting stance toward some of the nation’s biggest private developers as the refusal of the relentless property crisis to ease. Chinese President Xi Jinping has also stepped up support for the broader economy, issuing more sovereign debt for infrastructure spending, raising the budget deficit ratio and even making an unprecedented visit to the central bank.

Then again, not a day goes by this year when we are not inundated with the latest Chinese "news" and "plans" of a moderate stimulus, one which never actually materializes, however, and which is just recycled into the next newscycle where readers completely forget that they are just reading recycled news over and over.

And this time was no different because a Bloomberg index of Chinese developer stocks rallied this week on expectations that the financing help may alleviate fears of further contagion in China’s property sector. Still, some investors were concerned the list would mainly comprise state-owned firms and leave out distressed builders most in need of the support. Gemdale, which hasn’t missed any debt payments, is also on the draft list along with China Vanke, Seazen and Longfor Group.

chinese%20developers.jpg

Even if Beijing has finally decided to step in and bail out its long-suffering housing sector, there is no guarantee that the aid isn't a case of too little, too late. Country Garden, which is bigger than Evergrande was at its peak, has property developments in almost every province in China, and in October posted its biggest sales drop in at least six years. Growing concerns among potential buyers of its ability to complete projects threaten to exacerbate a cash crunch.
Speculation over Country Garden’s fate flared anew earlier this month after Reuters reported that China’s State Council instructed the government of Guangdong province to ask Ping An Insurance (Group) Co. to take a controlling stake. Ping An said it doesn’t hold any shares in Country Garden and has no plans to acquire it.
China’s property crisis has engulfed almost all of the largest developers, which have been struggling to repay debts and complete projects since the credit crunch emerged three years ago. Vanke, one of the country’s few remaining investment-grade builders, saw its dollar bonds plunge in recent weeks on the heels of Country Garden’s default. Vanke later received an unusually strong show of support from the local government.

Mick
Click to expand...
 
I remember the glitzy ads, and thinking, "you go first"...
.
...In Malaysia, Country Garden's plan was to build an eco-friendly metropolis featuring a golf course, waterpark, offices, bars and restaurants. The company said Forest City would eventually be home to nearly one million people.

Eight years on, it stands as a barren reminder that you do not need to be in China to feel the effects of its property crisis. Currently, only 15% of the entire project has been built and, according to recent estimates, just over 1% of the total development is occupied. Despite facing debts of nearly $200bn, Country Garden told the BBC it is "optimistic" the full plan will be completed....

Forest City: Inside Malaysia's Chinese-built 'ghost city'

Built during the Chinese property boom, Forest City is a stark reminder of the crisis in the sector.
www.bbc.com
 
Charlene Chu, writing in Barron’s magazine, in Dec 2023:
.
“More than 50 Chinese property developers have defaulted on bonds since early 2021, and a handful of local governments have warned of their own imminent defaults absent help from Beijing.

….This moment is more precarious than previous periods of financial stress in two key respects. First, the three most important drivers of economic growth for decades - property, exports, and local governments - are all experiencing a sharp pullback in activity, which is making servicing debt much more difficult for borrowers.

Second, China is now facing a deep and pervasive confidence problem that has taken a toll on consumption, private investment, and birthrates.

Those issues could spread to other areas, including the financial sector.”

- Charlene Chu is a senior analyst at Autonomous Research and was previously at Fitch Ratings, where she oversaw the credit ratings of Chinese financial institutions.

and, from FT
Screenshot_20240102-142341_Outlook.jpg
 


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