Is indebted real estate developer Evergrande Group seeking government support?

Business & Technology

Soon after an Evergrande Group subsidiary announced that it would bring six new electric cars to market, China’s biggest real estate developer is making news for all the wrong reasons.

ocean flower island by evergrande group
Ocean Flower Island, an artificial archipelago off the north coast of Hainan Island, constructed by China Evergrande Group. Reuters/Oriental Images.

China Evergrande Group, “the country’s largest developer by sales” and also “the world’s most indebted property developer,” according to the South China Morning Post, has been on a spending spree for years, snapping up land, soccer clubs, and pig farms. The company’s subsidiary Evergrande Health was recently renamed China Evergrande New Energy Vehicle Group and has released promotional materials for six new models of electric cars.

If that doesn’t sound dodgy enough, today a letter circulated online that appeared to show the company seeking support from the Guangdong government for a corporate restructuring, because it cannot service its debt.

  • Evergrande responded with a statement to the Hong Kong Stock Exchange, where its shares are traded, that says the “documents and pictures are fabricated and are pure defamation.”
  • However, as Caixin notes, “a close look at the debt situation of the nation’s largest developer by assets and its long-delayed backdoor listing on the Chinese mainland market indicates the risks exposed by the letter may not be groundless.”
  • Earlier this week, Reuters reported that China’s property developers are seeking “to dodge new rules” capping their ability to borrow by shifting debt off their balance sheets.

What will happen next

The Chinese government is unlikely to let an enormous company like Evergrande go under, no matter what its real financial situation looks like. But it’s a brave investor that will hang on to Evergrande shares.