septembre 22, 2021

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Contagion fears as loans are called on China’s Evergrande, the world’s largest debt developer

At least two of China’s largest non-bank creditors Evergrande Group have demanded immediate repayment of some loans, according to people familiar with the matter, adding to liquidity pressures at the world’s most indebted real estate developer.

The creditors are two trust companies, which raise money from wealthy individual investors and constitute a major source of funding for Evergrande and other Chinese developers.

People said that the trusts sent out payment notices to Evergrande over the past two months after they became concerned about the financial situation of the giant real estate company, and asked not to be identified because the details are private. Credit loans often include terms that allow creditors to request early repayment if certain conditions are met, such as sales targets, ratings downgrades, or lawsuits.

One person said that one of the funds has so far only received a small portion of the money owed by Evergrande. The amount of loans involved cannot be immediately known.

It’s the latest sign that Evergrande is struggling to make $305 billion (€256 billion) in profits from commitments to banks, shadow lenders, suppliers and homebuyers. Developer bonds have fallen to levels indicating investors are preparing for default, and its three major listed entities have shed more than $110 billion of combined market capitalization since mid-February. While Chinese regulators have urged the company to resolve its debt issues, the government has so far been silent on whether it will provide financial support.

Evergrande did not immediately respond to a request for comment.

The funds have been a significant source of Evergrande’s financing, accounting for about 40 percent of loans at the end of 2019, the last year the company disclosed the numbers.

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While trust lending to developers has slowed in the past year, Evergrande has about 46 billion yuan (6 billion euros) of such loans due in 2021, according to data compiled by Yongyi Trust Research. About 11 billion yuan is due in the fourth quarter.

A person familiar with the matter said failure to pay could prompt at least one fund to return all of its loans, though it’s unclear how Evergrande will respond. Cases against the company and its subsidiaries are being centralized in Guangzhou, a city in Guangdong Province, the hometown of the Evergrande, making it difficult for creditors to freeze assets or pursue payment through other local courts.

Evergrande warned this week that it risks defaulting on loans if its efforts to raise cash fail. Despite selling stakes in valuable assets and offering deep discounts to offload apartments, the developer reported a 29 percent profit drop in the first half. Its property and electric vehicle units incurred losses, while some vendors suspended work on projects due to unpaid bills.

“The group will make every effort to continue its operations and endeavor to deliver the properties to clients as scheduled,” Evergrande said.

The recent unrest has caught the government’s attention. Beijing has instructed authorities in Guangdong to draw up a plan to manage the developer’s debt backlog, people familiar with the matter said last month. The county government coordinates with banks, other creditors and potential buyers of Evergrande’s assets.