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China’s regulators order Evergrande to resolve its debt issues

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Evergrande Real Estate Group Ltd updates

China’s top financial regulators have ordered Evergrande to resolve its debt issues, in an unusually clear display of Beijing’s fears over the embattled property developer.

In a rare public admonishment, the People’s Bank of China and the China Banking and Insurance Regulatory Commission said in a statement on Thursday that Evergrande must “actively diffuse debt risk and maintain real estate and financial market stability” after meeting with its executives.

Evergrande said on Friday it would “fully implement” the requirements, including reducing its debt risks and maintaining market stability.

The company’s bonds that will mature in 2025 were trading down 3 per cent at 37 cents on the dollar following the announcement, a distressed level and far below their level of more than 80 cents as recently as May. Its shares pared earlier gains to rise 0.2 per cent, having previously added as much as 6.4 per cent.

The intervention follows months of deepening turmoil for Evergrande, whose debt-fuelled expansion at one point made its chair Hui Ka Yan China’s richest man. However, fears over the group’s ability to repay its vast debts have sent the developer’s shares and bonds tumbling.

Evergrande, which is one of China’s biggest corporate borrowers on international markets, had $104bn of interest-bearing liabilities outstanding at the end of March. It has said it plans to halve that figure by 2023.

The developer has come under pressure after guidelines introduced last year by Beijing sought to reduce leverage across the country’s biggest property sector amid fears it would overheat.

In their statement on Thursday, the regulators said: “Evergrande, as a top real estate company, must earnestly implement strategic arrangements made by the central government to ensure the stable and healthy development of the real estate market, and strive to keep operations stable.”

Although Evergrande’s indebtedness is longstanding, the group’s problems, ranging from court orders freezing its deposits over a loan dispute to local authorities temporarily halting sales at some of its projects, have mounted in recent months

Rating agency S&P earlier this month downgraded Evergrande’s rating to triple C, citing an “escalating non-payment risk”, and said its access to funding was “significantly more constrained than we expected”.

While it has no dollar-denominated debt maturing this year, Evergrande relies heavily on prepayments from customers buying its properties, as well as commercial bills that it issues to pay contractors. S&P estimates Rmb100bn ($15.4bn) of them come due this year.

Evergrande, which has built up an eclectic array of stakes in companies outside of real estate, has sought to sell assets to shore up its finances.

The company said it had held “preliminary exchanges” with Xiaomi about the Chinese smartphone maker taking a stake in its electric vehicle business. Evergrande added that the discussions were not in-depth.

This week, Hui stepped down from his role as head of Hengda, the company’s mainland subsidiary, though he remains in charge of the overall business.

A failed attempt to achieve a stock market listing of Hengda in Shenzhen sparked fears of a cash crunch last year, as investors were entitled to demand the refund of about Rmb130bn in investments if no listing occurred. The majority of investors subsequently said they would not ask for their money back.

Additional reporting by Wang Xueqiao in Shanghai and Hudson Lockett in Hong Kong

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