Evergrande Threatens Chinese Developers in U.S.

Evergrande Building in Nansha District, Guangzhou, China. (iStock)

With the chaos surrounding the China Evergrande Group – now the world’s most heavily indebted property developer – looming to blow up that country’s real estate market, some of the most active Chinese property developers in the US have been classified as risky.

Oceanwide Holdings, China Vanke and Greenland each have crossed at least one of the “three red lines” set by Chinese regulators. Failure to comply with the limits restricts new borrowing.

Oceanwide, which has gotten skyscraper projects in San Francisco, Los Angeles and New York into trouble, has broken all three lines targeting liability levels, debt and liquidity, according to a release from investment bank Natixis.

The Shanghai-based developer’s debt surged to over 70 percent of its assets, its net debt exceeded its equity value, and its short-term borrowings exceeded its cash reserves.

“The impact of increasing funding difficulties, either in terms of tighter permits or higher costs, could be severe for Oceanwide as it crossed all three red lines,” Natixis economist Alicia Garcia Herrero wrote in an email.

Herrero added that Oceanwide, which primarily develops homes in higher-tier cities, could be somewhat buffered from the immediate effects of an Evergrande-led real estate crash that would hit lower-class cities first. But if the contagion hits other parts of the property market or Evergrande becomes a systemic banking problem, Herrero said the effects will be wider.

Evergrande is struggling to pay off its more than $ 300 billion debt and is becoming one of the biggest threats to China’s economy in years. It draws comparisons with the collapse of Lehman Brothers in 2008, the final straw that sparked the great financial crisis.

Other Chinese developers violating the restrictions include Greenland, co-developer of the Pacific Park mega-project in Brooklyn, which failed the liability ratio and liquidity tests. China Vanke, embroiled in a messy midtown condo with RFR Realty, has been charged with liabilities exceeding 70 percent net worth.

Overall, the number of developers who touch all three lines is less than last year. According to Natixis, only 15 percent of companies broke the Trifecta in the first half of the year, compared to 20 percent in 2020.

And some US-based developers based in China remain relatively healthy. Hopson Development, for example, didn’t pull any of the three red flags earlier this year. The company is building a 35-story condominium tower in Midtown.

There are also a number of US developers active in China who have been affected by the turmoil caused by Evergrande.

Tishman Speyer has projects mostly in the cities of Shanghai and Shenzhen – areas Herrero said would be relatively safe from somewhat limited fallout.

The bigger risk, however, is that Evergrande’s troubles could cause regulators to tighten restrictions while home demand declines due to a restricted mortgage market. That could weigh on the entire Chinese economy and potentially become a global threat.

Wall Street opened with a sell-off on Monday as fears of an Evergrande liquidity crisis swept through Asia and Europe.

Contact Rich Bockmann

source https://www.bisayanews.com/2021/09/20/evergrande-threatens-chinese-developers-in-u-s/