Evergrande chairman projects confidence amid debt crisis
Talk of wider economic contagion malicious, experts say
Published: Sep 21, 2021 08:58 PM



Xu Jiayin, chairman of embattled Chinese real estate giant Evergrande Group, on Tuesday sought to project confidence that the company will recovery from its debt crisis, as concerns are mounting over whether the over-stretched Chinese property giant will emerge from its debt-induced woes. 

Experts noted that neither the property behemoth itself nor industry watchers expect such liquidity strains to be fatal and those touting fears of a wider economic contagion as a consequence of Evergrande defaulting are suspected of maliciously bad-mouthing the Chinese economy.

In a note to his staff in celebration of the Mid-Autumn Festival on Tuesday, Xu acknowledged that the company is facing unprecedented challenges, according to media reports.

Still, he firmly believed that "Evergrande will emerge from its darkest moments soon, and ramp up work and production resumption to ensure housing delivery," thereby submitting an answer sheet highlighting its accountability to homebuyers, investors, partners and financial institutions, read the note.

As of June 30, Evergrande's total liabilities had swelled to 1.97 trillion yuan ($305 billion) on the back of 2.38 trillion yuan in total assets, per its interim financial disclosure at the end of August.

Mirroring its indebtedness, the company's interest-bearing debts hit 571.78 billion yuan as of the end of June, among which debts due within a year stood at 240 billion yuan.

Evergrande's failure to pay overdue bills and its default on multiple wealth management products apparently fanned woes over its debt repayment ability.

Xu's latest remarks, coming coincidentally with signs of easing investor anxiety, however, indicate that the Evergrande panic, essentially overblown, won't undermine the economy, which is unswervingly cutting its reliance on the housing market, analysts said.

Xu's note addressed the core issue - the delivery of housing projects, including residential buildings, must be guaranteed - so as to ensure that homebuyers' rights and interests stay intact, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Tuesday.

Shares of Evergrande in the Hong Kong market edged down 0.44 percent on Tuesday, while shares of its new-energy vehicle unit closed flat and its property management arm gained 2.94 percent, ending a rout on the previous day. 

Underpinned by the turnaround, the benchmark Hang Seng Index finished up 0.51 percent on Tuesday after a dive of 3.3 percent over the prior day.

With its various debt issues already brought to light, fears that such issues would lead to any significant risks are untenable, Yang said, citing Evergrande's many salable projects, which he reckoned will help the company get through the liquidity crunch.

As of the end of June, Evergrande's land reserves covered a total of 778 projects located in 233 cities across the country, according to its first-half financial results. 

In the first half of 2021, it launched 65 new projects for sale in cities including Beijing, Guangzhou and Shenzhen.

As of June 30, Evergrande had 1,236 projects for sale, "including completed projects and projects under construction."

With such project reserves serving as a backstop, industry watchers urged sober-mindedness when it comes to the Evergrande issue.

"Risks associated with certain property developers have a lot to do with their unhealthy operations," rather than stemming from some woes that have gripped the property sector as a whole, Yan commented, arguing against malicious hype about the Evergrande issue smacking of the collapse of the property sector or even the economy.

The property giant, known as a forerunner in delivering apartments with fine decoration, has over the years expanded into many third-tier cities. Moreover, its ambition has gone far beyond the real estate sphere, with its new-energy vehicle moves frequently making the headlines.

"We expect another 50 basis point cut of the reserve requirement ratio (RRR) to be announced in the next couple of weeks. This could allow developers with relatively healthier financials to acquire projects of Evergrande," DBS economists said in a research note sent to the Global Times on Tuesday.

The previous RRR cut, effective July 15, was expected to release about 1 trillion yuan in long-term liquidity, according to China's central bank.

Alongside a continuation of property tightening - as part of efforts to shift the economy toward consumption-driven and sci-tech innovation-oriented growth - the country's residential property sales fell 20 percent in August year-on-year.

Considering the 20 percent fall as mostly driven by the high base last August, Fitch Ratings said in a research report circulated on Monday that the decline was not "as alarming as the headline numbers suggest."

August 2021 sales totaled 1.1 trillion yuan, the second-best August sales on record, according to the rating agency, expecting full-year home sales to "remain largely flat to 2020 even if the decrease in monthly sales persists for the rest of this year."