Commentary on Political Economy

Friday 9 July 2021


China Urged Evergrande’s Hui to Find Quick Fix for Debt Woes

Bloomberg News
Updated on 
  • Billionaire Hui met with top financial regulator in late June
  • Evergrande bonds, shares have been tumbling in recent weeks
Evergrande’s $32 Billion IOU Mountain Adds to Liquidity Concerns

When China Evergrande Group founder Hui Ka Yan appeared at the Communist Party’s 100th anniversary celebration in Tiananmen Square on July 1, investors cheered at the implication that the embattled property tycoon still enjoyed favor in Beijing.

Behind the scenes, the message Hui received from China’s top financial regulator was far more sobering. In a meeting at the nation’s capital shortly before the July 1 festivities, officials at the Financial Stability and Development Committee urged Hui to solve his company’s debt problems as quickly as possible, people familiar with the matter said.

The previously unreported discussion suggests Chinese authorities have become increasingly concerned that Evergrande poses systemic risks to the world’s second-largest economy. It adds pressure on Hui to deliver a more decisive fix to Evergrande’s finances, which have come under growing strain in recent weeks as the company’s bonds and shares tumble.

FSDC officials asked Hui to consider bringing in strategic investors to stabilize the property giant, emphasizing the need to avoid major shocks to the economy, one of the people said. Hui told the officials he’s been speaking with local governments as he looks for a solution, another person said, asking not to be identified discussing sensitive information.

It’s the latest twist in a financial drama that has turned Evergrande into a subject of intense speculation on trading desks from Hong Kong to New York.

While the world’s most indebted real estate company has been offloading assets and accelerating property sales to reduce leverage, it has so far failed to revive confidence among creditors, suppliers and some homebuyers who worry the company will struggle to make good on its $302 billion mountain of liabilities.

Evergrande’s shares have tumbled more than 36% this year to a four-year low, and its longer-dated offshore bonds have traded in the 60 cents range. The note due 2025 got a boost Friday on the Bloomberg News report, adding 1.8 cents on the dollar to 62.7 cents.

Evergrande's dollar bonds near their lowest levels since pandemic

The Chinese government has so far kept quiet about whether it will provide financial support for Evergrande, leaving investors to guess at its odds of becoming the next casualty of President Xi Jinping’s campaign to rein in moral hazard and tighten the state’s grip on key sectors of the economy.

Whatever solution Evergrande and Chinese authorities land on, it’s sure to be scrutinized for broader implications. Any move to significantly dilute shareholders including Hui, who owns a controlling stake in the developer, or impose losses on creditors could undermine confidence in other financially stressed companies across China. Conversely, a less onerous capital injection from private investors or government-linked funds could trigger a significant relief rally.

Some investors have looked to billionaire Zhang Jindong’s Suning group of companies as one potential road map for Evergrande. Zhang lost control of, his troubled retail unit, after securing a $1.36 billion investment this month from a consortium that included funds linked to governments in the company’s home province of Jiangsu. Among the reasons Zhang needed the cash injection: He has 20 billion yuan ($3 billion) tied up in an investment with Evergrande.

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