One of China's largest property developers, Evergrande Group, is facing an unprecedented debt crisis. The company owes nearly $300 billion in debt, some of which is overdue. Evergrande's financial woes have raised fears that it could trigger financial turmoil and a collapse in the property market.
On the evening of September 24, Evergrande issued an inside announcement on its proposed offshore debt restructuring, revealing some important details. According to the announcement, Evergrande plans to convert its existing offshore bonds and loans into new notes to extend its repayment period and reduce its interest burden. The issuance of new notes is subject to relevant PRC regulations and must demonstrate eligibility.
However, Evergrande's debt restructuring plan did not go well. The company said in the announcement that because its main subsidiary, Evergrande Real Estate Group Co., Ltd., is being investigated by the China Securities Regulatory Commission, the group now expects that it believes that it is necessary to re-examine the terms of debt restructuring to match its objective circumstances and creditors' demands. As a result, the meeting on arrangements for debt restructuring, scheduled for 25 and 26 September, will not take place. Evergrande said it would announce any changes to the terms of the debt restructuring.
Evergrande's debt crisis involves not only its overseas creditors, but also its domestic investors and customers. Evergrande Wealth, Evergrande's wealth management platform, has sold high-yield wealth management products to hundreds of thousands of investors, promising to pay principal and interest at maturity. However, due to the rupture of Evergrande's capital chain, Evergrande's wealth could not be paid on time, resulting in collective rights protection and protests by investors.
On September 16, Shenzhen Nanshan Public Security issued a case report, saying that criminal compulsory measures had been taken against some managers of Evergrande Financial Wealth Management (Shenzhen) Co., Ltd. because they were suspected of committing crimes. Evergrande Group clarified in the announcement that Evergrande Wealth is its indirect wholly-owned subsidiary, and the criminal compulsory measures taken by relevant personnel will not affect its business operations.
Evergrande's debt crisis has also caught the attention of the Chinese government. According to media reports, the Chinese government has instructed local governments to prepare for a potential default by Evergrande. The Chinese government may take some steps to stabilize market sentiment and protect consumer interests, but it is unlikely to bail out Evergrande across the board.
As a giant in China's real estate industry, the impact of the debt crisis on China's economy and society cannot be underestimated. It remains to be seen whether Evergrande can successfully complete the debt restructuring and get out of the predicament.