Lender China Evergrande Minsheng Bank Cuts Developer Loans Amid Leverage And Default Concerns

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Largest Bank Lender China Evergrande Reduces Its Risks most indebted developer to reassure their own investors, this is a sign that local lenders have begun to increase their protection against default risk.

China Minsheng Banking Group, a major commercial lender, said its Evergrande debt has been reduced since last September following a developer credit check, according to the Shanghai Stock Exchange investor relations platform late Wednesday. “The risk is maintained within a controlled range.”

The bank’s explanation reflects a major concern among investors and lenders do business with tycoon Hui Ka-yan, China ranks 10th richest Forbes, whose flagship company has for decades raised concerns about its highly leveraged strategy despite annual sales of industry-leading homes.

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Investors also pulled back, selling the stock 27 percent this year, dropping its market value by as much as HK $ 85.7 billion (US $ 11 billion) over the period. Worries have also infected its most actively traded dollar bonds, which have fallen from 85 cents on the dollar to 69 cents in the past month alone.

Hui Ka-yan, Chairman of China Evergrande. alt = Hui Ka-yan, Chairman of China Evergrande.

China Evergrande, which borrowed 670 billion yuan ($ 104.1 billion) at the end of 2020, has become a lightning rod for criticism and a focus of regulatory crackdown to contain systemic risk to the mainland’s financial industry. Last August, China’s central bank and the Housing Ministry introduced the so-called “three red lines” to curb excessive corporate pressure on developers.

Several major lenders have reportedly advised their affiliates not to write out new unsecured loans from Evergrande as the developer is facing bouts of liquidity shortages. Market regulators have also ordered bank lenders to stress test their capital and liquidity reserves in the event of a crisis on Evergrande.

Evergrande has previously reacted to these assumptions, calling such reports extremely inaccurate.

Could Evergrande, which owed $ 104.1 billion at the end of last year, collapse like the HNA Group?

The company said Thursday that it had agreed to pay HK $ 13.6 billion on its offshore bonds due Monday and “has no additional domestic or foreign government bonds until March 2022.”

China Minsheng’s comments came a day after Fitch Ratings downgraded the developer to B with a negative outlook, citing continued pressure to cut and lower its debt burden.

“We believe the company’s debt reduction plan is achievable, but it is subject to significant execution risk and could also negatively impact the company’s business profile in the medium term,” Fitch said in a statement. The negative outlook reflects Evergrande’s limited access to debt capital markets and a strong reliance on fiduciary loans. ”

The property developer may continue to struggle with negative headlines. Reports that banks are rejecting Commercial Acceptance Bills (CABs) or so-called short-term IOUs issued by Evergrande to their suppliers have gone viral on Chinese social media.

IN post office previously spoke with contractor Evergrande, which is saddled with RMB 1 million unpaid CABs issued in June and another RMB 5 million due in July. A contractor based in Nantong in southwestern Jiangsu province declined to give his name due to the sensitive nature of the issue.

China’s hard “three red lines” are said to restrict access to credit for Evergrande. It was the only one of the top 10 Chinese developers to break all three leverage ratios and was therefore barred from building up new debt.

Minsheng said Wednesday that Evergrande has so far paid its loans and interest in full on time, and its main collateral is assets that can be easily monetized, including land, real estate and projects under construction.

“We will continue to closely monitor Evergrande and its subsidiaries and their financial position,” the bank said. “If we notice any potential risk, we will actively take risk management measures.”

This article originally appeared in South China Morning Mail (SCMP), the most authoritative voice reporting on China and Asia in over a century. To learn more about SCMP, see SCMP application or visit SCMP Facebook as well as Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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