Fears of contagion as loans are requested from Chinese Evergrande, the world’s most indebted developer

At least two of the largest non-bank creditors in the China Evergrande group have demanded immediate repayment of some loans, according to people familiar with the matter, exacerbating liquidity strains for the world’s most indebted real estate developer.

Both creditors are trust companies, which pool money from high net worth retail investors and are a major source of funding for Evergrande and other Chinese developers.

Trusts have sent redemption notices to Evergrande over the past two months after worrying about the financial health of the real estate giant, people said, asking not to be identified as the details are private. Fiduciary loans often include conditions that allow creditors to demand early repayment if certain conditions are met, such as sales targets, credit downgrades, or lawsuits.

One of the trusts has so far only received a small portion of the money owed by Evergrande, one of the people said. The size of the loans involved could not be learned immediately.

It’s the latest sign that Evergrande is struggling to honor its $ 305 billion (€ 256 billion) in debt owed to banks, shadow lenders, vendors and homebuyers. The developer’s bonds have fallen to levels that suggest investors are bracing for default, and its top three listed entities have lost more than $ 110 billion in combined market value since mid-February. While Chinese regulators have urged the company to resolve its debt problems, the government has so far been silent on its financial support.

Evergrande did not immediately respond to a request for comment.

Trusts have been a major source of funding for Evergrande, accounting for around 40% of borrowing at the end of 2019, the last year the company disclosed the numbers.

While developer trust loans have slowed over the past year, Evergrande has around 46 billion yuan ($ 6 billion) in such loans maturing in 2021, according to data compiled by Yongyi. Trust Research. About 11 billion yuan is due in the fourth quarter.

A non-repayment could prompt at least one trust to recall all of its loans, a person familiar with the matter said, although it is not known how Evergrande would react. Legal cases against the company and its subsidiaries are centralized in Guangzhou, a city in the home province of Evergrande, Guangdong, making it more difficult for creditors to freeze assets or pursue repayment through the intermediary. other local courts.

Evergrande warned this week that he risked defaulting on his loans if his efforts to raise funds were insufficient. Despite selling stakes in valuable assets and offering big discounts to offload apartments, the developer saw a 29% drop in profits in the first half of the year. Its real estate and electric vehicle units posted losses, while some vendors suspended work on projects due to unpaid bills.

“The group will do everything possible to continue operations and will endeavor to deliver the properties to customers as planned,” said Evergrande.

The recent crisis has caught the government’s attention. Beijing has asked authorities in Guangdong to come up with a plan to deal with the developer’s debt, people familiar with the matter said last month. The provincial government coordinates with banks, other creditors and potential buyers of Evergrande’s assets.

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