Real estate giant’s possible bankruptcy sparks financial fears in China
Beijing, Sep 14 (EFE).- Real estate giant China Evergrande Group Tuesday warned of default risks after accumulating a whopping debt of $305 billion and two subsidiaries failing to uphold financial guarantee obligations.
Shares in the cash-strapped property group plunged by more than 11 percent at the Hong Kong Stock Exchange, in a grim reminder of a similar trend last year when Evergrande lost more than 80 percent of its market value.
A group of investors Monday protested in the Evergrande headquarters in the southern city of Shenzhen, calling on the firm to pay back loans and financial products.
The group, founded in 1996, benefited from the wave of urban migration in China.
In 2009, the company was listed on the Hong Kong Stock Exchange and performed well in the next decade.
Its founder, Xu Jiayin, became the richest man in China with a fortune of $42.5 billion in 2017, Forbes said.
The market value of Evergrande shares also peaked that year.
The Chinese property sector is now battling with a decline in home sales and new real estate regulations.
The group had allegedly hidden a pile of debt incurred to expand to other sectors like health, electric vehicles, and even sports.
Evergrande’s income and profit fell between January and June this year, forcing it to put some projects on hold and some assets on sale to maintain cash flow.
The real estate sector is one of the pillars of Chinese growth and represents 7.5 percent of the country’s GDP, official data shows.
Last week Evergrande suffered two cuts in its debt rating by the Moody’s and Fitch.
The company on Tuesday announced that the value of property sales in June, July, and August was 153,490 million yuan ($23,807 million), signaling “a downward trend.”
On Monday, the company dismissed reports about a potential bankruptcy as “completely false.”
It acknowledged that the cashflow was under “tremendous pressure.”
Evergrande said it was in negotiations with investors on its wealth management products.
The ripple effects of a possible bankruptcy could shake the global financial market given the size of the group that employs more than 120,000 people. EFE