Banks close doors on Evergrande

Finance | Agencies and Victor Zhong 23 Jun 2021

Bonds of the China Evergrande (3333) slumped yesterday after Bloomberg reported several large Chinese banks are restricting credit to the firm and Fitch Ratings downgraded it deeper into junk territory.

Three banks with a combined 46 billion yuan (HK$55.16 billion) of credit exposure to Evergrande as of June 2020 have decided in recent months not to renew loans to the company when they mature this year, according to people familiar with the matter. The decisions were made before Evergrande's bonds began tumbling at the end of May and resulted from banks' internal risk assessments, they said.

Three other banks are allowing Evergrande to rollover portions of credit lines it has already tapped but are limiting the company's access to any untapped credit from those lines, the people said. These banks decided against a more restrictive stance partly due to concern that a large reduction in lending to the developer could destabilize China's financial system before the politically sensitive 100th anniversary of the Communist Party on July 1, the people said.

Some Chinese trust firms - the second-biggest lenders to Evergrande after banks - have also been reassessing their exposure to the company, people familiar with the matter said. One firm no longer considers guarantees from the group as sufficient for lending to its subsidiaries, focusing instead on the quality of collateral backing the loans.

Another is reviewing whether to issue new products tied to Evergrande. Both firms are among the 10 largest providers of trust loans to the developer.

With more than US$20 billion (HK$156 billion) of offshore bonds, Evergrande stands alongside China Huarong Asset Management (2799) as one of the most prolific Chinese issuers of dollar debt.

Fitch yesterday lowered Evergrande's credit rating by a notch to B, along with its assessment of subsidiaries Hengda Real Estate and Tianji Holding. The risk assessor cited "ongoing pressure for Evergrande to downsize its business and reduce total debt." The ratings outlook is negative. The downgrade helped deepen a selloff in the firm's dollar bonds with the note due 2025 falling 2.6 cents on the dollar to 70.7 cents, its biggest drop in nearly two weeks, Bloomberg-compiled prices show. The stock earlier closed 0.7 percent higher yesterday.

Evergrande denied that banks were curbing its access to funding and said its business relationships with all banks and financial institutions were normal, without elaborating.

On Sunday, Evergrande sold stake in its internet unit for US$570 million. The following day, it said it would sell shares in a Hangzhou unit to a company controlled by Wang Zhongming, a repeated investor in Hui's operations.

Shares of Evergrande were little changed yesterday, inching up 0.74 percent to HK$10.88.

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