Evergrande default concerns
September 21, 2021 - China’s Evergrande Group -- the world’s most indebted property developer with a $305 billion mountain of debt -- has triggered fears that it could default on interest payments this month.
Evergrande faces an $83.5 million interest payment relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on September 29 for March 2024 notes. Both bonds will default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.
In 2017, Evergrande’s share price surged by 550 per cent. GMT Research described the company as dependent on Ponzi finance -- the property giant needs to borrow more funds just to pay the interest on its existing debt.
The financial research firm cites questionable accounting treatment. At the time, the company had 400,000 empty car parking spaces valued at around $20,000 each. This unusual accounting treatment means Evergrande can manufacture profits simply by building more car parking spaces without selling them.
Analysts at Barclays said that a possible Evergrande default would be far from being China’s “Lehman moment,” even as it could be a drag on the property sector.
Evergrande’s stock price has plummeted 87 per cent since February. Yet, Hui Ka Yan, the billionaire owner, has sought to reassure bankers that it will pull through.
In a letter to staff, Hui said the company is confident it will “walk out of its darkest moment” and deliver projects as pledged.