A banner promoting the Emerald Bay housing project outside the China Evergrande Center in the Wan Chai area of Hong Kong, China on Friday, July 23, 2021.
Lam Yik | Bloomberg | Getty Images
Contested property developer China Evergrande said Tuesday that its home sales are likely to continue to decline significantly in September, which will further worsen its liquidity position.
The company reiterated that it could default on its debt and reiterated a warning it issued two weeks ago. Evergrande has attempted to sell some assets to ease its liquidity crisis, but said those efforts have not yet worked.
Evergrande’s stock fell nearly 10% in morning trade. So far this year it has plummeted by almost 80%.
Evergrande sales have been falling steadily since June. The Chinese real estate giant said in a filing on the Hong Kong Stock Exchange that it expects a “significant” sustained drop in sales this month.
According to Evergrande, this would “lead to a continual deterioration in the group’s cash collection, which in turn would put enormous pressure on the group’s cash flow and liquidity”.
“September is typically the month when real estate companies in China see higher contract sales of real estate. However, the persistent negative media coverage of the group has dampened the confidence of potential homebuyers in the group, ”the filing stated.
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Rating agencies have repeatedly downgraded Evergrande since last year as the world’s most heavily indebted property developer struggles to stay liquid. The company’s financial condition deteriorated particularly after the Chinese government put rules in place to contain developers’ borrowing costs. These measures limit a company’s debt in terms of cash flows, assets, and capital levels.
“Unsure” whether Evergrande can sell its assets
Units Evergrande has attempted to sell include China Evergrande New Energy Vehicle and Evergrande Property Services. However, it has not yet reached an agreement with investors and it remains “uncertain” whether the company can confirm a sale.
It also said it is actively considering the sale of its Hong Kong office building, the China Evergrande Center in Wan Chai. But even these efforts have not borne fruit.
Evergrande said it will continue to take steps to alleviate its liquidity problems, including “tight” cost controls, encouraging sales and exits of assets.
Evergrande warns of “cross-default” risks
Evergrande also warned that its escalating problems could also lead to wider risk of default.
“Given the difficulties, challenges and uncertainties in improving liquidity mentioned above, there is no guarantee that the group will be able to meet its financial obligations under the relevant funding documents and other contracts,” she warned investors.
If it is unable to repay its debts, this could lead to a “cross-default” under its existing financing agreement and relevant creditors demanding payments.
A cross default means that a failure triggered in one situation can spill over to other bonds. That could lead to wider contagion in other sectors.
source https://www.bisayanews.com/2021/09/14/china-evergrande-says-property-sales-drop-warns-it-could-default/
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