Evergrande, the embattled Chinese real estate giant, is facing significant challenges in its efforts to restructure its colossal debts. The company revealed on Sunday that its plan is in jeopardy due to a regulatory investigation into its primary subsidiary, Hengda Real Estate Group. This probe has rendered Evergrande "unable to meet the qualifications" for issuing new notes, which are short or medium-term securities.
Hengda Real Estate Group, Evergrande's flagship unit in mainland China, disclosed last month that it was under scrutiny by the securities regulator for potential violations related to investor information disclosure. The consequences of this could be dire for Evergrande. If the company's restructuring efforts fall through and it fails to negotiate a new agreement with its creditors, it might face liquidation. This would entail the sale of its assets and the cessation of all operations.
The ramifications of Evergrande's challenges were felt in the stock market, with the company's shares plummeting by over 21% in Hong Kong on Monday. This decline also negatively impacted the stocks of other Chinese property developers. Evergrande, which was once China's second-largest real estate company, defaulted on its financial commitments to creditors at the end of 2021. This default ignited a crisis in the property sector, which continues to have repercussions on the broader economy. It's noteworthy that China reportedly has enough vacant properties to accommodate its entire population of 1.4 billion.
Since its default, Evergrande has been striving to execute a government-supervised debt restructuring. In March, the company, which had total liabilities amounting to $328 billion at the end of June, proposed a multi-billion-dollar plan to reconcile with its international creditors. As part of this strategy, Evergrande recently sought bankruptcy protection in the United States.
However, the company's announcement on Sunday came on the heels of its decision to cancel crucial meetings with creditors aimed at restructuring its offshore debt. Evergrande cited underwhelming property sales in recent months as the reason for this cancellation.
The restructuring plan's success is crucial for restoring confidence in China's real estate industry, which previously contributed to as much as a third of the country's GDP. The plan, which involves over $19 billion in debts held by overseas investors, is now in jeopardy due to the ongoing investigation into Hengda by the China Securities Regulatory Commission (CSRC).
In response to the probe, Hengda has pledged to "actively cooperate" and to "strictly fulfill" its obligations related to information disclosure. Earlier this month, some staff members of Evergrande's wealth management unit were detained by Chinese police in Shenzhen after the unit failed to repay investors. This marked the first criminal investigation into Evergrande since the onset of its debt crisis nearly two years ago.
