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How Evergrande’s debt poses systemic risk


Chairman Hui Ka Yan founded Evergrande in Guangzhou in 1996. It is China’s second-largest property developer, with $US110 billion ($A147 billion) in sales last year, $US355 billion ($A474 billion) in assets and more than 1300 developments nationwide.

Evergrande grew rapidly through a loan-supported land-buying spree and selling apartments quickly at low margins. In June this year it employed 163,119 staff.

Slowing growth has seen it branch into businesses such as insurance, bottled water, soccer and electric vehicles (EVs).


In June, Evergrande said it did not pay some commercial paper on time, and in July a court froze a $US20 million ($A27 million) bank deposit held by the firm at the bank’s request.

The firm in late August said construction at some of its developments had halted due to missed payments to contractors and suppliers. It sought repayment extensions for a trust loan in early September, and reports said Evergrande would suspend interest payments due on loans to two banks that month.

Liabilities totalled 1.97 trillion yuan ($A409 billion) at the end of June – equivalent to two per cent of China’s gross domestic product.


Evergrande accelerated efforts to cut debt last year after regulators introduced caps on three debt ratios, dubbed the ‘three red lines’.

It offered steep discounts on residential developments to spur sales and sold the bulk of its commercial properties.

Since the second half of 2020, it has had a $US555 million ($A741 million) secondary share sale and raised $US1.8 billion ($A2.4 billion) by listing its property management unit, while its EV unit told a $US3.4 billion ($A4.5 billion) stake.


China’s central bank said in 2018 companies including Evergrande might pose systemic risk to China’s financial system.

The firm’s liabilities involved as many as 128 banks, a leaked letter showed.

Late repayments could trigger cross-defaults as many financial institutions are exposed via direct loans and indirect holdings.


In Hong Kong, Evergrande owns an office tower and residential development as well as two nearly completed residential developments, plus undeveloped land.

It has spent billions acquiring stakes in car technology developers, including Sweden’s NEVS, the Netherlands’ e-Traction and Britain’s Protean. It also has joint ventures with Germany’s Hofer and Sweden’s Koenigsegg.


In comments reported by state media Xinhua and echoing words from the central bank, Vice Premier Liu He told a Beijing forum on Wednesday the risks were controllable and reasonable capital demand from property firms was being met.

The chairman of China’s securities regulator, Yi Huiman, said authorities would properly handle the default risks and look to curb excessive debt.

Central bank Governor Yi Gang said on Sunday the world’s second-largest economy is “doing well” but faces challenges such as default risks for certain firms due to “mismanagement”.

Yi Gang said China will fully respect and protect the legal rights of Evergrande’s creditors and asset owners.


Evergrande remitted $US83.5 million ($A111.5 million) to a trustee account at Citibank on Thursday, a source told Reuters, allowing it to pay all bondholders before the payment grace period ends on Saturday.

The developer will need to make payments on a string of other bonds, with the next major deadline to avoid default only a week away and little known about whether it is in a position to pay those debts.

Evergrande missed coupon payments totalling nearly $US280 million ($A374 million) on its dollar bonds on September 23 and 29, and October 11, beginning 30-day grace periods for each.

After a grace period ends, non-payment would result in formal default and trigger cross-default provisions for its other dollar bonds.

Evergrande’s next payment deadline is October 29.

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