China is asking local governments to prepare for possible “economic and social repercussions” should Evergrande Group—the world’s most heavily indebted property developer—go bankrupt in the coming weeks. wall street journal.
The company’s stock rose on Thursday as investors looked buoyed by news that its main subsidiary Hengda Real Estate Group would complete an interest payment of $35.9 million on onshore bonds on September 23. In a filing with the Shenzhen Stock Exchange, Hengda said it had made the last-minute deal through “private negotiations.”
But Beijing is showing no signs it will pull Evergrande out of its $300 billion liabilities. It is defining the country and the world’s second-largest economy as a “potential storm” for officials. magazine reported on Thursday.
The real estate titan faces two more deadlines for interest payments in the next seven days. A foreign bond payment of $83.5 million is also due on September 23, and another interest of $47.5 million is due on September 29. It has a grace period of 30 days for settlement of outstanding payments.
Last week, Evergrande informed investors that it would not be able to meet its financial obligations. “Should the group file for default and bankruptcy,” the newspaper said, “local-level government agencies and state-owned enterprises have been instructed to take steps to handle the aftermath.”
Local officials are tasked with “preventing the unrest and mitigating the ripple’s impact on home buyers and the wider economy,” magazine added.
“Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances surrounding Evergrande’s operations in their respective regions, from local state-owned and private property developers to local real estate projects. be prepared to take up and set up a law-enforcement party to monitor public anger and so-called ‘mass incidents’, a euphemism for protest,” the paper said.
Evergrande employs about 200,000 people nationwide and is responsible for creating 3.8 million jobs annually. It has been plagued by stock sell-offs for a month due to the financial crisis and high borrowing and cash flow problems.
In a letter sent to employees, as China celebrated the Mid-Autumn Festival holiday over the weekend, the group’s president, Hui Ka Yan, tried to boost morale by promising his employees a solution.
“I firmly believe that with your concerted effort and hard work, Evergrande will come out of its worst moment, with full-scale construction resuming as soon as possible,” said the 62-year-old.
Financial analysts are debating whether Evergrande’s possible demise could be China’s “Lehman moment,” triggering a financial crash that could have a huge impact on the United States and the global economy.
The subsequent mismanagement of Evergrande could also cause trouble for China’s ruling party, according to David Dollar, senior fellow at the Brooking Institution.