At least two of China Evergrande Group’s largest non-bank lenders have demanded immediate repayment of some of the loans, according to sources familiar with the matter, exacerbating liquidity problems for the world’s most indebted developer.
The two lenders are trust companies that pool the money of wealthy individual investors and are the main source of funding for Evergrande and other Chinese developers.
The trusts have sent redemption notices to Evergrande in the past two months after worried about the real estate giant’s financial health and asked not to be named, according to People, as the details are confidential. Fiduciary loans often include conditions that allow lenders to demand an early repayment if certain conditions are met, such as sales targets, downgrades, or legal action.
One source said that so far, one of the trusts has received only a small portion of the money owed to Evergrande. It was not immediately possible to find out the size of the attracted loans.
This is the latest sign that Evergrande is struggling to pay off its $ 305 billion (€ 256 billion) liabilities to banks, shadow lenders, suppliers and home buyers. The developer’s bonds fell to levels indicating that investors are preparing for default, and since mid-February, the combined market value of the three major companies listed on the exchange has reached more than $ 110 billion. While Chinese regulators are urging the company to resolve its debt problems, the government has so far remained silent about whether it will provide financial support.
Evergrande did not immediately respond to a request for comment.
Trusts were a significant source of funding for Evergrande, accounting for about 40% of borrowing at the end of 2019 when the company disclosed those numbers last year.
While developer fiduciary lending has slowed last year, according to Yongyi Trust Research, Evergrande has about 46 billion yuan (€ 6 billion) of such loans maturing in 2021. About 11 billion yuan is due in the fourth quarter.
Failure to repay could prompt at least one trust to withdraw all of its loans, said a person familiar with the matter, although it is unclear how Evergrande will react. Lawsuits against the company and its subsidiaries are centralized in Guangzhou, a city in Guangdong province where Evergrande lives, making it difficult for lenders to freeze assets or repay loans through other local courts.
Evergrande warned this week that it risks defaulting on loans if its fundraising efforts fail. Despite the sale of shares in valuable assets and the offer of large discounts on the sale of apartments, the developer reported a decrease in profits by 29% in the first half of the year. His property and electric vehicles suffered losses, and some suppliers have suspended work on projects due to unpaid bills.
“The Group will do everything in its power to continue its operations and try to deliver properties to clients on schedule,” said Evergrande.
The recent riots have caught the attention of the government. Beijing has instructed the Guangdong provincial government to develop a plan to manage the developer’s pile of debt, people familiar with the situation said last month. The provincial government is coordinating with banks, other lenders and potential purchasers of Evergrande assets.