China Evergrande moves towards bankruptcy amid investigations

By Emre Aytekin

BEIJING (AA) - China Evergrande Group, a major Chinese property developer, is moving toward bankruptcy step by step as it faces investigations and after missing principle and interest payments.

A plan by the conglomerate to restructure its maturing debts has hit a dead end amid probes by regulators and judicial authorities.

Evergrande notified the Hong Kong Stock Exchange on Sept. 24 that the China Securities Regulatory Commission and the National Development and Reform Commission had placed "administrative measures" on the company's debt restructuring plan.

The notification said the company would not be able to issue new debt bonds due to the measures taken in an investigation into its main subsidiary, Hengda Real Estate Group.

Following the announcement, the company's shares fell 21.8% on Monday.

- Huge debt

Evergrande had 2.4 trillion yuan ($328 billion) in total liabilities on June 30, equivalent to about 2% of China's GDP.

It is also facing numerous lawsuits from creditors over its defaulted debts worth 12.6 billion yuan ($1.7 billion).

The company, whose payment difficulties deepened due to the ongoing recession in China's real estate sector and a decline in housing sales, canceled six meetings scheduled for Sept. 25 and 26 to discuss debt restructuring with creditors.

Weaker-than-expected sales and the need to reassess restructuring terms were cited as reasons for the cancelations.

If the company fails to reach an agreement with its creditors by the first court hearing in Hong Kong on Oct. 30, its assets may be seized in exchange for its debts.

Evergrande announced to the stock exchange on Aug. 16 that its main subsidiary, Hengda Real Estate Group, was being investigated by authorities for suspected violations of information-sharing rules.

Founded by businessman Xu Jiayin in 1996 under the name "Hengda Group" in the southern city of Guangzhou, the company quickly became one of the largest companies in China with its investments in large-scale housing and urban transformation projects in major cities.

The Chinese government's plans to impose a rate cap on lending by banks and financial institutions to the sector from 2020 to curb unhealthy growth in the construction and real estate sector is seen as the most important factor triggering Evergrande's difficulties in rolling over its debts.

*Writing by Gokhan Ergocun from Istanbul