![]() ![]() Experts warned that buyers were waiting for a fire sale.īut a slowing property market and less demand for new apartments made things worse.Įvergrande often relied on a model of preselling apartments before they were fully built. It failed to sell an electric vehicles business despite talks with interested buyers. Fearing a spillover into the broader financial system, regulators have cracked down on developers like Evergrande, forcing them to pay off the debt owed to banks and other financial institutions.Įvergrande struggled to sell off its sprawling empire. Its financial troubles are in part the result of Beijing’s attempt to get China’s housing market to cool off. Aside from its on-the-books debt of $300 billion this year, some experts estimate its liabilities off the books could be another $156 billion. With each success the company expanded into new areas, such as bottled water, professional sports and electric vehicles.īut it borrowed too much to pay the bills it owed to banks, contractors and investors. ![]() “As a result, it will have to be across jurisdictions, which will make it highly complex.”įor more than a decade, Evergrande was China’s largest developer, minting money from a property boom on a scale the world had never seen. “There isn’t a clean, single legal mechanism that can be implemented to restructure the group,” he said. “Evergrande is complex and has entities in companies both inside and outside the People’s Republic of China,” said Daniel Anderson, a partner at the law firm Ropes & Gray in Hong Kong. Investors could go after assets overseas, but the process could be messy. The Communist Party controls the local courts and has a history of leaving foreign investors with little or nothing. Under their guidance, the troubled company was pushed into administration.įoreign investors challenge that trend at their peril. Early last year, local government officials stepped in to seize control of HNA, a transportation and logistics conglomerate saddled with debt from expensive overseas acquisitions. Three years ago, Beijing seized control of Anbang Insurance Group after detaining its chair, who was later sent to prison for fraud. Earlier this week, Evergrande said officials from several state-backed institutions had joined a risk committee that would help the company restructure itself.īeijing has been front and center in the aftermath of past corporate disasters. ![]() But it is clear that Beijing will play a role. “The risk of Evergrande is a market incident which will be properly handled in accordance with the principles of marketization and rule of law, and the rights and interests of creditors and investors will be protected in accordance with the law,” he said.Įvergrande had already said it would “actively engage” with its foreign creditors to come up with a plan for restructuring. Yi Gang, the central bank governor, indicated Thursday that Evergrande would go through something resembling a typical reorganization, suggesting a bailout was not in the cards. ![]() To emphasize this point, China’s central bank has blamed Evergrande’s “own poor management and reckless expansion” for its problems and said the crisis was limited to Evergrande. But more recently, authorities have shown greater willingness to let companies fail in order to rein in China’s unsustainable debt problem. These defaults are testing a long-held understanding among foreign investors that Beijing would ultimately step in to save its biggest companies.įor years, many investors gave money to companies like Evergrande on the basis of this assumption. Fitch on Thursday also put Kaisa, another large and distressed developer, into its “restricted default” category after the company failed to pay bondholders $400 million earlier this week. ![]()
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