Closed doors, abandoned construction sites and a police cordon around the headquarters. Evergrande isnt bankrupt yet, but the Chinese real estate giant is shaking on its foundation. For the second time in a week, the company seems to have to miss an interest payment. Employees, suppliers and investors hold their breath.
“Were coming to get our belongings,” says one of the construction workers as he leaves the construction site, his body loaded with drain pipes. “Work has stopped, is no longer paid.” He collaborated on one of the 778 projects Evergrande is developing in China. Worked, because this project in Taicang, just above Shanghai, is still like hundreds of other projects.
Evergrande has too little cash in cash to pay suppliers, and suggested that they are talking to resumption of projects last month. At least its not that far in Taicang yet. “Were taking the tools left now,” says a colleague.
Its quiet in Guangzhou too.
More than a thousand kilometres south, beneath the smoke of Guangzhou, its not so far. But also at the gate of the factory where Evergrande wanted to make his way as a builder of electric cars, it was extinct, except a few guards.
“This is not public territory, leaving,” one of them asks the question of what is going on in the factory. The runner of a small restaurant around the corner wants to talk. “Until recently, it was full of Henanese,” she says, referring to the province known for its large numbers of migrant workers. Its quiet now. “Most of them have left recently. They didnt get paid any more.”
Evergrande is teetering. There is another deadline today. The company has to pay more than $47 million in interest on an international bond loan. Last week, the company missed such a coupon payment. “Everything indicates that international investors are at the bottom of the list in Beijing,” said Shehzad Qazi of research firm China Beige Book.
The $1.5 billion raised with a share stake sale in Shengjing was used to repay debts from that same Chinese state bank. There is a 30-day redemption free period according to the agreements before a missed payment on that bond would become a default.
“The price is now at 30,000 renminbi per square metre. In the future, this could be up to 80,000 renminbi”, says a sales agent of “Sunshine Peninsula”, an Evergrande real estate project near Guangzhou. This is where the government stepped in.
The local housing commission has created a special bank account to secure payments from new homebuyers. In any case, should Evergrande go bankrupt, their money is guaranteed. Qazi: “Policymakers want to see pain, as a lesson to other real estate developers in the market. But the households need to be taken care of is the thought.”
Dring Gates and Agents
Over the past few weeks, hundreds of people have moved to Evergrande headquarters in Shenzhen. Construction workers who came to collect their salary, small investors who had invested money into high-yield policies. With pressure fences and ribbons, they now have to be kept out of the door.
Many dozens of police officers in attendance try to keep the peace of mind. There are several ME vans lined up on the road, police cars run off and on. “There will be a solution,” thinks construction worker Fang, back in Taicang. “In the end, the government always comes to our aid,” is his conviction.
Qazi, from China Beige Book, also thinks local governments and banks will be encouraged to step in. “Banks are de facto part of government. If they are told that money should be loaned, they do. Whether or not that money comes back is not their primary concern.”
According to him, full bailouts are not obvious. “One will want to ensure that projects can be completed. But the Beijing party summit wanted less risk in the financial sector. They wanted to slow down the growth of debt. Thats exactly whats happening right now.”