On the afternoon of July 19, 2021, a civil order issued by Wuxi Intermediate People’s Court in Jiangsu Province was circulated in the market, indicating that Yixing Branch of Guangfa Bank requested to freeze the bank deposits of Yixing Hengyu Real Estate Co., Ltd and Evergrande Real Estate Group Co., Ltd., or to seal up or confiscate other properties of equivalent value.
Evergrande then issued a solemn statement, saying that the maturity date of the project loan of 132 million yuan between Yixing Hengyu Real Estate Co., Ltd., a project subsidiary of Evergrande Jiangsu Province, and Yixing Sub-branch of Guangfa Bank is March 27, 2022. “For Yixing Sub-branch’s abuse of pre-litigation preservation, our company will Sue according to law.” B times B zero means.
As of press release, the other party of the matter Guangfa Bank did not respond to this matter, but the impact on Evergrande is real. Although Evergrande timely response, but Evergrande is still suffering from the stock and bond double kill this afternoon, stock, bond prices plunged across the board.
The “Butterfly Effect”
Although the markets have been inoculated about the current state of Evergrande, it is hard to stop investors from panicking when the facts show up.
Under the influence of this news, Evergrande stocks fell across the board today. By the end of July 19, Evergrande in China had dropped 16.22% to HK $8.21 / share. Evergrande Motors was down 19.10% at HK $16.10 a share; Hengteng was down 11.76% at HK $4.05 a share; Evergrande Property was down 13.38% at HK $6.73 per share.
In fact, according to the 21st Century Business Herald, the reason for the loan dispute between GDB and Evergrande is that Yixing Hengyu Real Estate Co., Ltd. approved 370 million yuan in the Wuxi branch of GDB Bank and made a loan of 370 million yuan. As of July 19, 2021, the balance was 132.01 million yuan and the contract expires on March 27, 2022.
However, Guangfa Bank believes that if the project triggers the loan contract according to the sales progress, the sales progress in Article 19, paragraph 2 of the contract reaches 70%, all the loan principal and interest should be paid back. However, Evergrande holds different opinions, with three main reasons: 1. The actual repayment time of the project is not reached; 2. The project provides 128 sets of mortgage for the construction under construction, and the Evergrande real estate group guarantees this loan, and the actual guarantee measures can fully cover the loan balance; 3. Preface Hengdafang has communicated with GF for many times that this loan will be gradually repaid in the second half of 2021 and will be settled at the end of 2021. However, GF is not satisfied with the above repayment arrangement and will Sue.
Chen Defu, senior partner lawyer and economist at Yingke (Shenzhen) Law Firm, told 21st Century Business Herald, “Property preservation before litigation is carried out means that the plaintiff preserves the defendant’s property before filing a lawsuit. Either way, the court will require the party to provide property security, in order to assume liability for the wrong application for property preservation. In the order, it was the bank that applied for pre-litigation property preservation, and the bank had plenty of money and didn’t even need any guarantee.”
Therefore, from the point of view of the cause of the event, the loan dispute between Guangfa and Evergrande may not be completely positively correlated with the solvency of Evergrande, but it is quite damaging to market sentiment. Because, when large financial institutions take substantial action on Evergrande, it is like a “signal light”, an event with directional significance for the future development of Evergrande.
“Take the lead in chasing back the slightest movement, and that will make a big difference.” A person who holds Evergrande bonds told the 21st Century Business Herald.
The crisis to
Evergrande’s health is currently on investors’ minds following the Guangfa Bank’s loan dispute with Evergrande, but the bank is showing signs of needing more initiative.
According to recent news from Evergrande, the debt-strapped real estate company has improved its balance sheet by cutting prices to promote sales and selling assets.
According to the announcement of Evergrande in July 2021, the current Evergrande interest-bearing liabilities are about 570 billion yuan, which is a significant decrease of about 300 billion yuan compared with the peak of 874.3 billion yuan in 2020. At the same time, the net debt ratio has been successfully reduced to below 100 per cent, a red line turned green.
Earlier, on June 24, China Evergrande announced that it had arranged to repay US dollar debt in advance of its own funds of HK $13.6 billion. At this point, Evergrande before March 2022, there will be no more maturing domestic and foreign open market bonds.
But while the financial metrics have been improved, the larger iceberg of debt at Evergrande is actually hidden from view. The huge scale of BBB 0’s commercial bill, for example, is also a concern for investors.
According to the 21st Century Business Herald, the discount rate of Evergrande commercial ticket has gone to about 36%, which is similar to China Happiness and Blu-ray. Even so, no one dares to buy a Evergrande ticket, a commercial ticket agent told 21st Century Business Herald. “Some people are leveraging up, and their positions are already full. Can you not be afraid if you don’t pay when you are due?”
This shows that the market on BBB 0 to resolve the debt crisis concerns still not because BBB B1 reduced the net debt ratio. Because, the current idea of Evergrande is to guarantee the open market, and for commercial bills, there is indeed overdue situation.
In fact, the way to reduce debt for the real estate enterprises, is very simple and brutal, nothing more than to increase income and reduce expenditure, so it is nothing more than, sell assets, accelerate the sale of housing and control expenditure.
Evergrande in the open market has almost no land to see, selling houses also have the corresponding action of price for volume. Only in the sale of assets, temporarily did not see a large number of assets were taken over the news. According to the 21st Century Business Herald, Evergrande is currently putting a number of projects in Guangdong, Jiangsu and Liaoning on the shelves, “the determination to sell is great, but the price is still in the game.” “Said a person familiar with the situation.
A noteworthy event is that on the same day that the loan dispute occurred between Guangdong Development Bank and Evergrande, Shaoyang Housing and Construction Bureau issued a notice on its official website to suspend the online signing of Evergrande Washington project, which pointed out that the Shaoyang Evergrande Washington project developed by Shaoyang Lushan Real Estate Development Co., Ltd. On January 1, 2021, a total of 432 sets of commercial houses were sold on July 13, with a transaction amount of 238 million yuan. The amount entered the supervised account was only about 17 million yuan, and more than 200 million yuan did not enter the supervised account. The amount of supervision is not in conformity with the actual amount of sales, there is the act of off-book collection and use, misappropriation of pre-sale funds, deliberately evade supervision, has seriously violated the “urban commercial housing pre-sale management measures” (Ministry of Construction Order No. 131) and other provisions.
“In this regard, I have repeatedly interviewed your company and issued a notice of rectification, your company turned a deaf ear to this, refused to rectify. So far, no actual corrective action has been taken. After study, it is decided to suspend the pre-sale license, the online registration and the pre-sale fund allocation of this item from now until October 13, 2021. At that time, you will decide whether to cancel the decision based on your company’s corrective actions.” Shaoyang Housing and Construction Bureau pointed out.
Shaoyang Lushan Real Estate Co., Ltd. is 60% owned by Evergrande Real Estate Group Changsha Real Estate Co., which in turn is a wholly-owned subsidiary of Evergrande Real Estate Group Co., Ltd., according to Qixinbao.
If Evergrande makes reducing its debt the most important goal at the moment, it will be good, not bad, to present a positive image to the market. But whether it can be done is worth watching.
Reprint indicated source：Spark Global Limited information