Several Chinese Banks Restrict Credit to Evergrande Over Debt Risk, Property News & Top Stories


SHANGHAI (BLOOMBERG) – Several major Chinese banks are restricting credit to the China Evergrande group amid growing concerns over the developer’s financial health, people familiar with the matter say.

Three banks with a combined 46 billion yuan (S $ 9.58 billion) credit exposure to Evergrande in June 2020 have decided in recent months not to renew loans to the company as they fall due this year, the officials said. people, asking not to be identified by discussing private information.

The decisions were made before Evergrande’s bonds began to tumble in late May and were the result of banks’ internal risk assessments, the sources said.

Three other banks allow Evergrande to roll over portions of lines of credit it has already used, but limit the company’s access to any untapped credit from those lines, the people said.

These banks decided not to take a more restrictive stance in part because they feared that a significant reduction in loans to the world’s most indebted developer could destabilize the Chinese financial system before the politically sensitive 100th anniversary of the Communist Party on the 1st. July, people said.

Some Chinese trust companies – Evergrande’s second-largest lenders after banks – have also reassessed their exposure to the company, people familiar with the matter have said.

A company no longer considers the group’s guarantees as sufficient to lend to its subsidiaries, focusing instead on the quality of the guarantees backed by the loans. Another examines whether to issue new products related to Evergrande. Both companies are among the top 10 providers of developer trust loans.

While the metrics alone don’t suggest that Evergrande is at risk of an impending liquidity crunch, they do show that the company faces declining options as it searches for ways to pay off debt.

Evergrande remains heavily reliant on bank financing even after some lenders took preliminary steps to reduce their exposure in the second half of last year.

According to its latest annual report, bank loans and other corporate borrowing, including trusts, accounted for about 81 percent of the developer’s 335.5 billion yuan in interest-bearing debt maturing in 2021.

In response to Bloomberg’s questions on Monday, Evergrande denied that banks were restricting its access to finance and said its business relationships with all banks and financial institutions were normal, without further details.

Major Evergrande creditors, including China Minsheng Banking, China Citic Bank, Industrial & Commercial Bank of China, China Construction Bank, China Zheshang Bank and Bank of China, did not immediately respond to requests for comment.

Billionaire real estate giant Hui Ka Yan in March unveiled plans to halve its debt over the next two years and also pledged to meet at least one of the regulatory borrowing limits. China for developers, known as the “three red lines,” by the end of this month.

The company increased home sales – sometimes with big discounts – and offloaded other assets to free up money.

On Monday, June 21, Evergrande announced that it would sell shares in a Hangzhou unit to a company controlled by Wang Zhongming, a repeat investor in Mr. Hui’s operations.

It’s the billionaire’s latest move to tap into the financial support of friends with deep pockets, who have repeatedly stepped up cash injections during times of stress.

Evergrande stock jumped 9% on the news, rebounding from a four-year low and hitting short sellers who had piled into bearish bets in recent weeks.

The company’s stocks and bonds had fallen since late May after missed payments at Evergrande subsidiaries and a report that regulators were probing the developer’s ties to Shengjing Bank, a lender in which it has a stake.

Evergrande said it will arrange payment for overdue commercial papers from its subsidiaries and that its transactions with Shengjing Bank comply with Chinese law.

Undesirable rated bonds issued by Evergrande that mature in June 2025 fell 0.5 cents on the dollar to around 73 cents on Tuesday, according to data compiled by Bloomberg. The stock lost 1.5% at 11:06 am in Hong Kong.

By refusing to roll over loans to Evergrande, some banks are taking an even more cautious approach than required by the “three red lines” framework.

While Evergrande is barred from taking on additional debt after becoming one of four big real estate companies to cross the three red lines late last year, the developer can roll over existing loans if banks agree. to do.

Trust companies, which invest the money of wealthy Chinese savers, have already significantly reduced their exposure to Evergrande, according to data compiled by Use Trust. The developer has only raised 9.3 billion yuan in fiat issues so far this year, down 85% from the first six months of 2020. This financing accounted for 41% of the company’s total borrowings. at the end of 2019.

Evergrande has long been a source of anguish for Chinese regulators and creditors.

In 2018, the central bank named the developer as well as HNA Group, Tomorrow Holding and Fosun International as companies that could pose systemic risks to the country’s financial system.

Chinese regulators recently asked Evergrande’s major creditors to conduct a new round of stress tests on their exposure to the company, people familiar with the matter said earlier this month.

Evergrande’s complex web of liabilities – including bank loans, bonds, and homebuyers’ down payments – swelled to 1.95 trillion yuan at the end of last year, of which about 77% was owed in every 12 months, according to its annual report.

With more than US $ 20 billion (S $ 26.85 billion) in offshore bonds, Evergrande is, alongside China Huarong Asset Management, one of the most prolific Chinese issuers of dollar debt.

Like Huarong, he is seen as a litmus test of the government’s willingness to support distressed borrowers as policymakers attempt to balance sometimes competing goals of maintaining financial stability and reducing moral hazard.

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