Evergrande Group, the embattled property developer at the center of China’s real estate crisis, has once again missed a bond payment, raising further concerns about its future. The company’s flagship unit, Hengda Real Estate, failed to make principal and interest payments on a 4 billion yuan ($547 million) bond. This default comes after Evergrande already defaulted on its debt in 2021, setting off a crisis in China’s property sector.
Investors were already worried about the fate of Evergrande after the company revealed a regulatory probe into Hengda and a separate criminal investigation into its shadow banking unit. These developments have cast doubt on Evergrande’s ability to complete its multi-billion-dollar debt restructuring, which is being closely monitored by global investors.
The news of the missed bond payment has rattled investors, causing shares in Evergrande to plummet. The company’s stock closed down 7% Tuesday, following a 22% drop the previous day. Other developers also saw declines, with Sunac China falling over 6% and Country Garden dropping 4.2%. The Hong Kong Hang Seng Index also declined by 1.5%, reaching its lowest level in 10 months.
If Evergrande fails to restructure its debt and reach a new agreement with offshore creditors, it could face liquidation, resulting in the sale of its assets and the cessation of its operations. This could have significant repercussions for China’s economy, which has relied on the real estate market for growth.
China’s property industry has historically accounted for up to 30% of the country’s gross domestic product. The ongoing downturn in the industry and the defaults of many developers have led to distress in the offshore dollar bonds of Chinese developers. This situation has raised concerns about the stability of China’s economy and its implications for global commodities demand and prices.
The financial crisis at Evergrande has reignited fears about China’s economic stability, particularly in the housing sector. There are growing concerns that the country’s housing market continues to deteriorate, putting financial stability at risk. Last month, Zhongrong Trust, which had invested over $9 billion in the real estate sector, missed payments to its investors, leading to rare protests. This demonstrates how the prolonged property downturn in China is affecting its financial industry.
Furthermore, there is unease about whether Chinese authorities are taking sufficient measures to support the overall economy. The government’s focus has shifted from pure economic growth to achieving tech self-sufficiency and maintaining financial stability. This shift presents a complex and delicate balancing act for Chinese authorities.
The investigation into Hengda, the cancellation of key creditor meetings, and the disappointing sales of properties have further contributed to the uncertain future of Evergrande. The company’s debt crisis, which began nearly two years ago, has now resulted in a criminal probe being launched against it.
Overall, the situation with Evergrande is adding to the concerns about China’s property market and its impact on the broader economy. Investors and market observers are closely watching for any developments and measures taken by Chinese authorities to stabilize the market and address the financial risks.