Evergrande admits it may not meet debt repayments

Evergrande has told the market it may run out of money.
The post Evergrande admits it may not meet debt repayments appeared first on The Motley Fool Australia. –

Evergrande is making headlines again after telling the market that it may run out of money.

The Chinese real estate developer has said that there was no guarantee that it would have enough funds to meet debt repayments.

In an announcement on the Hong Kong Stock Exchange, Evergrande said that since September 2021, it has been reviewing its capital structure and liquidity condition with the help of its financial and legal advisors, evaluating all available strategic options and maintaining ongoing dialogue with offshore creditors.

Here is what the company said about potentially not having enough cash:

In light of the current liquidity status of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations. The Group is taking a comprehensive view in assessing its overall financial condition, considering the interests of all stakeholders, upholding the principles of fairness and legality, and plans to actively engage with offshore creditors to formulate a viable restructuring plan of the company’s offshore indebtedness for the benefit of all stakeholders.

Why did it make this announcement? It’s because the company has received a demand to “perform its obligations” under a guarantee for the amount of approximately US$260 million.

If Evergrande is unable to meet its guarantee obligations or certain other financial obligations, it “may lead to creditors demanding acceleration of repayment”.

Time will tell whether Evergrande is able to get through this latest problem.

What are the authorities doing about it?

According to reporting by Reuters, China’s Guangdong province has summoned the chair of Evergrande, Hui Ka Yan . Guandong province is where Evergrande is based.

The local government said that it would send people to the company to “oversee risk management, strengthen internal controls and maintain normal operations.”

It was also reported that China’s central bank, banking and insurance regulator and its securities regulator sought to reassure the market with statements.

The People’s Bank of China said:

Evergrande’s problem was mainly caused by its own mismanagement and break-neck expansion.

The People’s Bank also said that short-term risks caused by a single real estate firm will not undermine market fundraising in the medium and long term and supposedly housing sales, land purchases and financing “have already returned to normal in China.”

Reuters reported the China Banking and Insurance Regulatory Commission (CBIRC) said the Evergrande issue would not affect the industry’s normal operations and it would increase support for guaranteed rental housing. The Commission said that it believed domestic and overseas regulators would deal with Evergrande-related issues fairly.

Finally, the news agency said that the China Securities Regulatory Commission (CSRC) said any fallout for the capital market was “controllable” and it would maintain support for property developers’ funding needs.

What does this mean for ASX shares?

Evergrande is one of the biggest real estate developers in China, but it’s currently dealing with debts of more than US$300 billion. For Australia, Evergrande is a big user of steel and therefore Australian iron. If the company went under it could cause volatility.

The market will get a chance to react to this news with the share prices of ASX iron ore miners like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

The London-listed BHP share price dropped 2.75% on Friday, so the ASX version of BHP may or may not follow on from that.

The post Evergrande admits it may not meet debt repayments appeared first on The Motley Fool Australia.

Should you invest $1,000 in BHP right now?

Before you consider BHP, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and BHP wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

More reading

Top brokers name 3 ASX shares to buy next week

These were the best performing ASX 200 shares last week

ASX 200 (ASX:XJO) midday update: BHP higher on unification plans, TPG tumbles

BHP (ASX:BHP) share price lifts as single listing gets green light

Analysts say these are the ASX resources shares to buy now for big returns

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!