Investors demanding their money back have mobbed the headquarters of a failing Chinese property company with huge $300billion debts amid fears it is about to collapse and devastate the Chinese economy.
Around 100 anxious investors yesterday forced their way into the lobby of the Shenzhen headquarters of the property giant Evergrande after it said it was facing ‘unprecedented difficulties’.
The Hong Kong-listed developer is sinking under a mountain of liabilities totalling more than $300 billion after years of borrowing to fund rapid growth.
An estimate by Capital Economics says that Evergrande has some 1.4 million properties that it has committed to complete – around 1.3 trillion yuan ($200 billion) in pre-sale liabilities, as of the end of June.
Its plight has raised fears of a contagion across the debt-laden Chinese property sector – which accounts for more than a quarter of the economy – with a knock on for banks and investors.
Some analysts have questioned if China faces a ‘Lehman Brothers moment’ in reference to the collapse of the Wall Street investment bank that triggered the 2008 credit crunch.
Security personnel formed a human wall to protect staff at the embattled firm as protesters shouted for executives to repay loans.
Executives have insisted the firm will avoid a bankruptcy that many fear could have a huge impact on the world’s number-two economy, but have conceded the conglomerate is under ‘tremendous pressure’.
The Hong Kong-listed developer is sinking under a mountain of liabilities totaling more than $300billion after years of borrowing to fund rapid growth.
Protesters have mobbed a failing Chinese property company with $300billion of debt to demand their money back amid fears it could collapse
Hundreds of anxious investors yesterday demonstrated at the Shenzhen headquarters of the embattled property giant Evergrande after it said it was facing ‘unprecedented difficulties’
Security personnel were seen forming a human chain as angry demonstrators mobbed the Hong Kong headquarters of failing Chinese property company Evergrande on Monday
General Manager and Legal Representative of Evergrande’s wealth management division Du Liang spoke to protesters and provided a two year repayment plan.
But investors reportedly rejected the offer amid fears the firm will file for bankruptcy before it can repay the loans.
Demonstrations have also taken place online in recent months, in forums hosted by the People’s Daily, the official newspaper of the Chinese Communist Party. Anxious investors there have called on the government to step in.
The group was downgraded by two credit rating agencies last week while its shares tumbled below their 2009 listing price, as a battery of bad headlines and speculation of its imminent collapse ran out across Chinese social media.
The company today issued a statement to the Hong Kong stock exchange, saying it had hired financial advisers to explore ‘all feasible solutions’ to ease its cash crunch and warned that there was no guarantee it would meet its financial obligations.
The firm blamed ‘ongoing negative media reports’ for damaging sales in the pivotal September period, ‘thereby resulting in the continuous deterioration of cash collection by the Group which would in turn place tremendous pressure on the Group’s cashflow and liquidity’.
Shares in the firm fell nine per cent Tuesday, and are down almost 80 per cent since the start of the year.
An estimate by Capital Economics says that Evergrande has some 1.4 million properties that it has committed to complete – around $200billion in pre-sale liabilities, as of the end of June.
Protesters mob the headquarters of property giant Evergrande in Shenzhen, southeastern China, to demand their money back after it was revealed the company owes $300billion
The firm blamed ‘ongoing negative media reports’ for damaging sales in the pivotal September period, leaving hundreds of angry investors demanding Evergrande return their money
Police stand guard at the Evergrande headquarters in Shenzhen, China, today after angry investors mobbed the building demanding their money back from the embattled firm yesterday
Its plight has raised fears of a contagion across the debt-laden Chinese property sector – which accounts for more than a quarter of the economy – with a knock on for banks and investors.
‘Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,’ said Mark Williams, chief Asia economist at Capital economics.
Yet ‘markets don’t seem concerned about the potential for financial contagion at the moment,’ he said, adding ‘that would change in the event of large-scale default’, which would likely prod the central bank to step in and buttress the teetering developer.
‘The most likely endgame is now a managed restructuring in which other developers take over Evergrande’s uncompleted projects in exchange for a share of its land bank,’ Williams said.
Protests mobbed Evergrande’s headquarters on Monday after the company was forced to deny rumours it was about to go under after the group was downgraded by two credit rating agencies last week
A woman receives aid on the ground next to the General Manager and Legal Representative of Evergrande’s wealth management division, Du Liang, as people gather to demand their money
The pictures of angry investors outside the firm’s Shenzhen HQ could also cause alarm in Beijing, where leaders are keen to keep a lid on any form of social unrest.
Some creditors have demanded immediate payback of loans, Bloomberg News reported earlier this month.
Evergrande has already sold stakes in some of its wide-ranging assets and offered steep discounts to offload apartments, but still reported a 29 per cent slide in profit for the first half of the year.
It is also struggling to sell its Hong Kong headquarters, even at a loss.
The developer was founded in 1996 by Xu Jiayin, who went on to become China’s richest man during the country’s property boom of the 1990s.
He poured money into mass developments in new cities, raising $9 billion in its 2009 IPO in Hong Kong.
A year later Xu bought a struggling football team and renamed it Guangzhou Evergrande, lavishing millions of dollars on salaries for its stars and scooping titles.
Evergrande started to falter under the new ‘three red lines’ imposed on developers in a state crackdown in August 2020 – forcing the group to offload properties at increasingly steep discounts.=