Sunday, October 17, 2021

China real estate company may be in worse shape than we thought

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CNNMoney’s Lou Fancher With an additional $2 billion in debt due in 2026, Evergrande Real Estate may be facing cash-flow issues.

(CNNMoney) — Investors in one of China’s biggest listed property companies are left in the dark over a nearly $84 million payment.

The company, called Evergrande Real Estate, has been a major disappointment for investors in recent months. A big chunk of stock in the firm was suspended from trading in January after it warned that its lending spree was drying up.

At least five different factors have affected its profit this year, including a recession in the northeastern Chinese city of Dalian. Authorities have taken steps to boost growth amid the slowdown, sending shares in Chinese companies tumbling this year.

Now, bondholders are waiting for Evergrande to make an interest payment due on March 28.

Moody’s said March 21 it won’t review Evergrande’s rating until the bond payment deadline passes and “we expect the company to make the payment.”

Investors in unlisted, off-the-radar high-yield bonds appear no closer to getting in touch with Evergrande to try to get more information. Last month, China’s stock exchange ordered the bond exchange to make contact with investors as a response to concerns about Evergrande. But the exchange won’t comment, saying “communication between issuers and investors is not allowed.”

“Of course, Evergrande will not give any more notice on the bond payment,” a company official told CNNMoney by phone. “It is really a big question that investors have not been able to get satisfactory response from the company regarding the bond payment.”

The bonds fell 1.7% on Friday and are down about 4% this week. On March 22, Evergrande’s stock dropped nearly 7% on fears of its bond payment.

According to Standard & Poor’s, which rates the Evergrande’s credit, the company will only be able to cover capital expenditure, interest on the bond and paying suppliers with liquidity of less than HK$20 billion ($2.0 billion).

“The issuer has substantial liquidity of HK$200.0 billion including cash on the balance sheet,” according to a Standard & Poor’s bond analysis.

“Therefore, there is no cushion to cover potential sources of liquidity, including the likely use of cash as part of property investment expansion, and the possibility of possible liquidity requirements at the various group companies.”

The stock has plunged from a high of HK$7.9 per share last June to less than HK$2 last Friday.

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