What’s Next For The Property Giant, Evergrande?
As worried investors and suppliers protested outside Evergrande’s offices this week, the indebted property behemoth brought in restructuring consultants and warned it is under “tremendous pressure.”
As it strives to avert a collapse that may have enormous ramifications for the country’s economy, the organization has hired experts such as Houlihan Lokey, who advised on Lehman Brothers’ restructuring.
We take a look at what the faltering company might face in the future.
Evergrande dismissed rumors of insolvency this week, but conceded company was “in fact confronting unprecedented challenges.”
Because Evergrande is a private corporation, Beijing may feel less compelled to prevent it from going bankrupt, and may even force it to file for bankruptcy if it is causing too much social unrest.
According to Chris Devonshire-Ellis, head of Dezan Shira & Associates, the group is “very plausible” to go bankrupt, pointing out that Beijing let the Guangdong Investment Trust (GITIC) go bankrupt in 1999, leaving $4.4 billion in obligations.
It comes as Beijing strives to enhance “common prosperity” while also tightening regulation of domestic private-sector behemoths.
Most experts believe, however, that the state will not want Chinese homebuyers to be out of pocket.
The “best-case scenario,” according to SinoInsider’s Larry Ong, is that authorities “find a way to avoid Evergrande from declaring bankruptcy, provide the company’s creditors a glimmer of hope that they will walk away with at least something, and avert the triggering of further societal upheaval.”
The company conceded on Tuesday that asset sales – including its New Energy vehicle division – had not yet yielded anything, indicating that a reorganization is more likely.
However, it would be a huge opportunity, perhaps the biggest the country has ever seen.
The process of renegotiating Evergrande’s debt commitments is expected to be challenging, as the company faces a substantial pipeline of loan interest repayments over the next twelve months, according to Rajiv Biswas, APAC Chief Economist at IHS Markit.
Beijing has previously put pressure on real estate companies to pay off their debts.
“Overall, I believe the company will be reformed, with corporate investor elements of it being allowed to go out of business and the sections with significant private-public debt being reorganized to control and minimize the impact on Chinese family investments,” Devonshire-Ellis said.
“Beijing will want Evergrande’s assets dismantled and redistributed in a timely manner.”
There are fears that Evergrande may enter a downward spiral without government assistance, especially since the company has warned that property sales will fall this month owing to declining demand. Brief News from Washington Newsday.