China: Evergrande One Step Before Bankruptcy.

 

"Remember to buy a new apartment."

After a three-week hiatus, the Chinese real estate giant Evergrande resumed trading on its Hong Kong Stock Exchange.

Falling 10% for the time being - a good move considering the sale of its assets to Hopson Development Holdings fell into a vacuum.

Hopson's share rose more than 5%, while Evergrande Property Services lost 9% in morning trading.

The indebted Evergrande was in talks with Hopson over the sale of the service unit. Still, Hopson announced late Wednesday night that discussions to sell 50.1% of Evergrande Property Services had failed.

Evergrande also confirmed the information with a separate announcement.

The deal could reach Hong Kong $ 20.4 billion or $ 2.58 billion.

In any case, there is no lifeline for the faltering Chinese Evergrande, the second-largest sales real estate company in China. The colossal real estate company is one step ahead of bankruptcy. It threatens to "transmit" the problem not only to the rest of the country's real estate market but also to the economy itself.

The massive $ 305 billion debt has already halted China's post-pandemic economic recovery.

However, the current crisis could extend further if Evergrande fails to repay $ 83.5 million in debt by Saturday, leading it to -officially- bankruptcy.

The company has already received a 30-day grace period to repay its debts after the initial default in September. However, it has since defaulted on an additional $ 193.3 million bond repayment.

Xu Jiayin's former empire has embarked on a street race to clear its assets, trying to repay its debts.

Failed rescue plan

The rescue plan, however, needs several problems. First, negotiations for the sale of the 51% majority stake in Evergrande Property Services Group to the smaller real estate company Hopson Development Holdings, as mentioned above, failed, as it failed to convince the Guangdong authorities overseeing the restructuring of Evergrande.

The possible sale of Evergrande headquarters in Hong Kong to Yuexiu for $ 1.7 billion has also been stopped for an unknown reason.

The situation in the broader Chinese real estate market, which accounts for 25% of the country's economy, is a significant concern. According to Bloomberg data, real estate sales fell 16.9 percent in September from a year earlier, following a 19.7 percent decline in August.

Crisis dominoes and downgrades.

Many companies are trying to repay their massive debts. But, at the same time, the possible collapse of the Evergrande will create a "domino" of crisis, enticing the more minor, heavily indebted real estate companies.

So far, the "victims" of the crisis include China Properties, which defaulted on $ 7.3 billion worth of bonds this year, as well as Fantasia Holdings.

For their part, the rating agencies proceeded to downgrade companies. Last week, S&P Global downgraded both Greenland and Sinic Holdings.

According to Terry Chan, an analyst at S&P Global Ratings, "if Evergrande goes bankrupt, the phenomenon could spread to other companies, property prices, and the wider economy."

According to an analysis of 25,000 companies by S&P, China's corporate sector accounts for 31% of the world's corporate debt, $ 27 trillion.

The speculative model of real estate companies that have become giants due to three decades of rampant borrowing has been found under the microscope of the authorities, namely President Xi Jinping.

The "three red lines" of 2020 imposed a ceiling on the debt ratio of companies about their capital flows, assets, and reserves.

Nevertheless, the country's central bank "injected" liquidity of $ 15.6 billion on Wednesday, supporting healthy real estate companies and trying to reduce the crisis, according to Angus Coote of the Australian Jamieson Coote Bonds.

For his part, Helge Berger, an IMF official, stressed that "the broader risks to the economy have been reduced so far, but the authorities should continue to monitor the situation."

The year 2022 will be of particular interest.

This article is for informational purposes only and does not replace specialized consulting services with professional experts.