Evergrande admits it may not meet debt repayments

Evergrande has told the market it may run out of money.

| More on:
Empty wallet

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Evergrande is making headlines again after telling the market that it may run out of money.

The Chinese real estate developer has said that there was no guarantee that it would have enough funds to meet debt repayments.

In an announcement on the Hong Kong Stock Exchange, Evergrande said that since September 2021, it has been reviewing its capital structure and liquidity condition with the help of its financial and legal advisors, evaluating all available strategic options and maintaining ongoing dialogue with offshore creditors.

Here is what the company said about potentially not having enough cash:

In light of the current liquidity status of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations. The Group is taking a comprehensive view in assessing its overall financial condition, considering the interests of all stakeholders, upholding the principles of fairness and legality, and plans to actively engage with offshore creditors to formulate a viable restructuring plan of the company's offshore indebtedness for the benefit of all stakeholders.

Why did it make this announcement? It's because the company has received a demand to "perform its obligations" under a guarantee for the amount of approximately US$260 million.

If Evergrande is unable to meet its guarantee obligations or certain other financial obligations, it "may lead to creditors demanding acceleration of repayment".

Time will tell whether Evergrande is able to get through this latest problem.

What are the authorities doing about it?

According to reporting by Reuters, China's Guangdong province has summoned the chair of Evergrande, Hui Ka Yan. Guangdong province is where Evergrande is based.

The local government said that it would send people to the company to "oversee risk management, strengthen internal controls and maintain normal operations."

It was also reported that China's central bank, banking and insurance regulator and its securities regulator sought to reassure the market with statements.

The People's Bank of China said:

Evergrande's problem was mainly caused by its own mismanagement and break-neck expansion.

The People's Bank also said that short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long term and supposedly housing sales, land purchases and financing "have already returned to normal in China."

Reuters reported the China Banking and Insurance Regulatory Commission (CBIRC) said the Evergrande issue would not affect the industry's normal operations and it would increase support for guaranteed rental housing. The Commission said that it believed domestic and overseas regulators would deal with Evergrande-related issues fairly.

Finally, the news agency said that the China Securities Regulatory Commission (CSRC) said any fallout for the capital market was "controllable" and it would maintain support for property developers' funding needs.

What does this mean for ASX shares?

Evergrande is one of the biggest real estate developers in China, but it's currently dealing with debts of more than US$300 billion. For Australia, Evergrande is a big user of steel and therefore Australian iron. If the company went under it could cause volatility.

The market will get a chance to react to this news with the share prices of ASX iron ore miners like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

The London-listed BHP share price dropped 2.75% on Friday, so the ASX version of BHP may or may not follow on from that.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A young woman smiles as she rides a zip line high above the trees.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a bountiful session for investors this hump day.

Read more »

An excited man stretches his arms out above his head as he reaches a mountain peak.
Record Highs

Breaking: CBA shares hit a new record of $180

CBA shares can't possibly keep rising can they?

Read more »

A happy young couple celebrate a win by jumping high above their new sofa.
52-Week Highs

Guess which ASX 200 furniture retailer is up 400% in 5 years?

Up 400% over the past five years is not bad for a furniture retailer. Here's why this quiet compounder has…

Read more »

Arrows pointing upwards with a man pointing his finger at one.
Share Market News

Morgans says these ASX stocks can rise 30% to 80%

These shares could be cheap according to the broker. Let's see what it is saying.

Read more »

Two people shaking hands in the boardroom on a merger.
Mergers & Acquisitions

What did Macquarie make of the Brickworks and Soul Patts merger?

Macquarie sees simplification, scale, and upside… but it also has a warning..

Read more »

A cool young man walking in a laneway holding a takeaway coffee in one hand and his phone in the other reacts with surprise as he reads the latest news on his mobile phone
Mergers & Acquisitions

PointsBet share price surges 11% on improved takeover offer

The bidding war for PointsBet shares continues apace today.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

Leading broker tips 50%+ upside for IDP Education shares

The team at Macquarie thinks this beaten down stock could be a buy.

Read more »

Man looking happy and excited as he looks at his mobile phone.
Share Gainers

Why Coronado, DroneShield, Lovisa, and Mayne Pharma shares are racing higher today

These shares are having a good time on hump day. But why?

Read more »