Evergrande failed to implement its promised debt restructuring plan

The real estate company’s failure to meet its self-imposed deadline comes at a time when the entire Chinese real estate sector is dealing with a growing boycott of mortgages and declining home sales.
Instead, Evergrande offered some details of the “initial restructuring principles” of its external debt, according to the exchange’s filing on Friday, and said it aims to announce a “specific external restructuring plan within 2022.”
Evergrande, China’s most indebted company with $300 billion in debt, has been at the center of the country’s real estate woes since last year. It defaulted on its US dollar bonds in December after struggling for months to raise cash to pay off debts to creditors, suppliers and investors.
To contain the fallout, the Chinese government has Intervened To take a leadership role in guiding the company through its debt restructuring and sprawling business operations.
In Friday’s filing, Evergrande said it had made “positive progress” in the Navy’s restructuring process, but It added that it is still working with creditors and advisors to conduct due diligence for the company.

“Given the size and complexity of the group and the dynamics in which the group finds itself, the due diligence process is still ongoing,” she said, adding that work may be completed in the “near future.”

The lack of a concrete proposal highlights the uncertainties surrounding Evergrande’s opaque restructuring of its massive debt and sprawling business operations at a sensitive time for China’s real estate sector and economy.

International creditors complained earlier this year that they had been left fully informed about the companies’ intentions.

After creditors demanded updates and threatened legal action, Evergrande pledged in January that it would issue a “preliminary restructuring proposal” within six months. In June, it assured investors it was on track to deliver the plan by the end of July.

The development comes at a difficult time for China’s real estate sector, which is suffering from a sharp drop in house prices, weak buyer demand and a series of debt defaults by real estate companies.
The Chinese economy has also slowed significantly after the strict lockdown of the Covid virus, which slashed demand and disrupted industrial activities. Gross domestic product expanded 0.4% in the second quarter, the lowest growth rate since the start of the pandemic. Analysts are concerned that the government’s 5.5% annual growth target may be out of reach.
China's top leaders have remained silent on the country's economic goals

Why is Evergrande important?

Evergrande is a huge company – it has about 200,000 employees, generated more than $110 billion in sales in 2020, and owns more than 1,300 development projects in more than 280 cities. Several of its real estate projects have been delayed since last year due to the company’s liquidity problems.
Analysts have long been concerned that the collapse of Evergrande could lead to broader risks for China’s property market, hurting homeowners and the broader financial system. Real estate and allied industries account for up to 30% of GDP.
China's real estate crisis deepens as major Shanghai developer defaults

Since Evergrande defaulted, several other major developers, including Kaisa, Fantasia and Shanghai-based Shimao Group, have sought protection from creditors.

In recent weeks, the real estate crisis has escalated even more. Thousands of angry homebuyers who previously made down payments for unfinished projects threatened to stop paying their mortgages if construction was not completed in time. Some of them staged protests in downtown Wuhan, and put pressure on the local government and banks to help push developers to hand over their prepaid homes.

“The mortgage boycott is a double threat to developers and the housing market,” analysts at Capital Economics said in a report late last month.

Chinese homebuyers refuse to pay mortgages on unfinished apartments

They have drawn attention to the problem of cash-strapped developers not being able to complete properties they’ve already sold, which is “putting off new homebuyers.” They added that the boycotts have made banks more cautious about issuing mortgages, which could dampen property sales further.

in a report Last week, S&P Global Ratings estimated that property sales in China could fall by a third this year due to mortgage strikes, as people believe developers will not be able to complete pre-sold units in time – the most popular way to sell homes in the country.

“Without sales, more developers will collapse, which is a financial and economic threat,” said Capital Economics analysts.

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