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Embattled Evergrande Warns of Growing Default Risks as Pressures Mount

Evergrande says it has appointed two companies as joint financial advisers, in the clearest indication yet it is looking at restructuring options amid the scramble to repay its enormous debts; regulators are also said to be preparing a team to assess the group’s debts

China Evergrande boss Xu Jiayin (Hui Ka Yan in Cantonese) is under pressure to stabilize operations and ensure that all its many debtors are repaid. However, bond holders may be among those who lose out. AFP photo.

 

Cash-strapped property group China Evergrande Group said on Tuesday it has engaged advisers to examine its financial options and warned of default risks amid plunging property sales, sending its stock and bond prices sharply lower.

There have also been reports that regulators in Beijing are putting together a team of experts to examine the company’s finances. That could lay the groundwork for a state-backed restructuring of the world’s most indebted developer, but there is uncertainty on how much support the national government might commit to.

The real estate giant has been scrambling to raise funds it needs to pay lenders and suppliers, with regulators and financial markets worried that any crisis could ripple through China‘s banking system and potentially trigger wider social unrest.

In the latest development, Evergrande said two of its subsidiaries had failed to uphold guarantee obligations for 934 million yuan ($145 million) worth of wealth management products issued by third parties.

That could “lead to cross-default”, which “would have a material adverse effect on the group’s business, prospects, financial condition and results of operations,” it said in a statement to the Hong Kong stock exchange, without providing further details on the products.

The company’s shares slumped to a six-year low in Hong Kong on Tuesday and the Shanghai bourse halted trading of its listed bonds amid wild swings in its price.

Evergrande said it has appointed Houlihan Lokey and Admiralty Harbour Capital as joint financial advisers, the clearest indication yet that it is looking at restructuring options, analysts say.

The two firms will assess the group’s capital structure, evaluate its liquidity, explore solutions to ease the current liquidity stress and reach an optimal solution for all stakeholders as soon as possible.

“Evergrande’s announcement flags the first step of a restructuring, which usually involves either delay in interest payment, no interest payment or delay together with haircuts,” said James Shi, distressed debt analyst at credit analytics provider Reorg.

He said that liquidation would only happen if the restructuring failed.

Evergrande late on Monday said online speculation about bankruptcy and restructuring was “totally untrue”.

That came despite growing market expectation that Evergrande may need to restructure, after China ruled in August that various lawsuits against the developer would be centrally handled in Guangzhou.

Evergrande said it is talking to potential investors to sell some of its assets, but has made no “material progress” so far.

The company said earlier this month that it was in talks to sell certain assets, including stakes in Hong Kong-listed units Evergrande New Energy Vehicle and Evergrande Property Services. But major lenders have reportedly been reluctant to dispose of assets before getting the nod from national regulators.

Pressure on Evergrande – which has 1.97 trillion yuan ($305 billion) in liabilities – has intensified in recent weeks as fears over its ability to repay investors triggered protests that are certain to rattle Beijing.

The company blamed “ongoing negative media reports” for dampening investor confidence, resulting in a further decline in sales in September.

 

WIDER IMPACT

Shares of the company fell 12% on Tuesday to their lowest since December 2014. Its listed e-vehicle spinoff plunged over 23% and shares of its property management unit dropped 8%.

In the debt market, Evergrande’s June 2025 dollar bonds fell nearly 6 cents on Tuesday late morning to 27 cents, yielding 58.45%, according to financial data provider Duration Finance.

Moves in the company’s highly illiquid onshore bonds were more erratic, with one Shanghai exchange-traded bond surging nearly 23% and triggering a trading halt, while another in Shenzhen dived almost 12%.

Reorg’s Shi said there may be fresh bond selling if Evergrande defaults, but the market spillover would be limited because the risks have mostly been largely priced in.

The bigger risks are likely to be social, he added.

Angry investors gathered near Evergrande’s headquarters in the southern Chinese city of Shenzhen on Monday to demand the firm repay loans and financial products.

The developer’s struggles to quickly sell off assets and avert defaults on its massive liabilities are raising the risk of contagion for other privately-owned developers, fund managers and analysts say.

In a statement on Monday, it said it was facing “unprecedented difficulties” but would do everything possible to resume work and protect the legitimate rights and interests of its customers.

The company’s debt has been repeatedly downgraded by ratings agencies targeting the developer over its struggles to restructure huge debts.

 

• Reuters, Iris Hong and Jim Pollard

 

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Iris Hong

Iris Hong is a senior reporter for the China desk, and has special interests in fintech, e-commerce, AI, and electric vehicles. She began her career in 2006 and worked for Interfax News Agency and for PayPal before joining Asia Financial in July 2020. You can reach out to Iris on Twitter at @Iris23360981

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