Evergrande Real Estate, the second largest company in the Chinese real estate sector, did not pay its debt last Thursday (23), raising suspicions of bankruptcy. The company then announced an agreement and has up to one month to cover the amount of US$83.5 million (approximately R$450 million) in interest on a total debt of US$309 billion (R$1,166 trillion).
Next Thursday, another payment period for Evegrande will expire in the amount of US$47.5 million (about R$225 million). If the two installments are not paid by October 23, the company could default its bonds – implying default or a renegotiation. The situation once again raised suspicions about the company’s risk of bankruptcy.
Evergrande’s debt is the largest in the Chinese real estate sector and represents 2% of the country’s GDP. Some state branches announced that they did not have the funds to pay local debts, such as the case of the electric car manufacturer Evergrande New Energy Vehicle.
After the announcement, the company’s shares fell 9.42%. Since the beginning of the year, the value of the subsidiary has plummeted 97% on the Hong Kong stock exchange, from US$86.6 billion (R$465 billion) in February to US$2.5 billion (R$13.4 billion) billion) in September. Evergrande New Energy Vehicle would be Elon Musk’s Tesla’s main competitor.
In response, the People’s Bank of China made one of the biggest financial injections of the last month, a rebound of US$15.5 billion (R$83.3 billion) on Monday (27). China Guangfa Bank Co froze $20 million in Evergrande’s bank accounts.
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Municipal governments began to intervene in the company in some regions to ensure the completion of the works that were in charge of Evergrande. The central government, on the other hand, increases measures to control speculation and financialization of the real estate sector.
As land is considered a public good, builders must compete for public concessions through auctions held by state and municipal administrations. However, the value of the auctions has been decreasing, as the Chinese central government has also reduced the credits of the construction companies.
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On the other hand, the central administration now requests an annual planning of auctions from local governments. “That way they [governos estaduais e municipais] they can’t bluff to get better prices and construction companies can’t go out buying without predictability, they have to calculate the risks, make plans”, comments Marco Fernandes, a researcher at the Tricontinental Institute residing in Shanghai.
Next month’s pay is due to Chinese citizens. By 2022, Evergrande should pay the bonds of international financial agencies, including the Ashmore fund, from the United States, which holds 3% of the company’s total debt, followed by the Swiss bank UBS, with 1.37%, and the British HSBC, with 1.33%.
Edition: Arturo Hartmann