A unit of embattled Chinese developer Evergrande has failed to repay its loans and must pay a $1.1 billion guarantor, the company said in a Hong Kong IPO filing.
Evergrande has been involved in restructuring negotiations after amassing $300 billion in debt following Beijing’s crackdown on excessive debt and rampant speculation in the real estate sector.
The announcement comes after the company failed to publish a “preliminary restructuring proposal” by the end of July, despite assuring creditors it was on track to meet the deadline.
Evergrande said on Friday it had made “positive progress” on its restructuring process, hinting at the potential use of equity in its offshore subsidiaries to repay bondholders, but gave no specific details.
And on Sunday, the company said its Evergrande Group (Nanchang) subsidiary had failed to meet its debt obligations to an unnamed third party.
Evergrande Nanchang had posted counter-guarantees in the form of a pledge of 1.3 billion shares in Shengjing Bank, which it held, according to the filing.
“Since the borrowers did not repay the loans, the applicant has fulfilled its obligations under the guarantee and has made claims against the subsidiary,” it said.
It noted that the guarantor’s priority is to receive compensation from the sale of the shares, and the scope covers the amount (7.3 billion yuan) paid by the applicant.
Evergrande, a big name in China’s real estate sector, has been scrambling to shed assets in recent months, with chairman Hui Ka Yan using his personal wealth to pay off some of his debt.
According to media reports, the company has now found a potential buyer for its Hong Kong headquarters.
Its troubles are emblematic of the problems sweeping China’s massive real estate sector, with smaller companies also defaulting on loans and others struggling to raise cash.
As developers struggle financially and projects stall, angry homebuyers in dozens of cities have also begun refusing to pay their mortgages.
“The central government needs to take strong and credible action to ensure stalled projects are completed and delivered,” to restore confidence, Gavekal Dragonomics’ Andrew Baston said in a recent report.
“The problem is mainly a political one: the leadership has poured significant political capital into strict ownership policies in recent years,” he added.
“Can the government accept the embarrassment of such an obvious reversal…probably yes, but the risk is that it will take a while to get there.”