China Evergrande is Struggling to Deal with Problems
China’s one of the largest property developers is trying to cope with various challenges. On Tuesday, China Evergrande said its property sales will likely continue to decline significantly in September, resulting in a further deterioration of its cash situation. The company once more stated that it could default on its debt. It is trying to sell some assets to reduce its liquidity crunch. But the company said these efforts have not yielded anything yet.
The property developer’s stock declined nearly 10% in morning trade. From the beginning of 2021, its stock plummeted nearly 80%.
The company’s sales continue for several months. The property developer said in a filing with Hong Kong Stock Exchange it expects a “significant” continued decline in sales in September.
That result, the company said, would lead to “the cautious deterioration of cash collection by the Group”. Such outcome “would in turn place tremendous pressure on the Group’s cashflow and liquidity”.
China Evergrande highlighted one very serious issue. The ongoing media reports had a tremendous impact on the company’s activities. As a result, it is struggling to sell real estate.
China Evergrande and risk factors
Since 2020 ratings agencies repeatedly downgraded China Evergrande as it struggles to remain liquid. It is the most indebted property developer in the world. The Chinese property giant’s financial position eroded especially after the country’s government outlined rules to rein in the borrowing costs of developers. The government decided to place a cap on debt in relation to a company’s cash flow, assets, and capital levels.
The world’s most indebted property developer is trying to sell its units including China Evergrande New Energy Vehicle and Evergrande Property Services. To this day, it has not entered into an agreement with any investors. It remains “uncertain whether China Evergrande will be able to confirm any sale.
The company said it was actively selling its office building in Hong Kong, the China Evergrande Centre in Wan Chai. It was also unable to sell its office building in Hong Kong.
It said it would continue to take measures to reduce its liquidity issues including “strictly” controlling costs, etc.
The property giant also warned its escalating troubles could also lead to broader default risks. There is no guarantee that China Evergrande will be able to meet its financial obligations under the relevant financing documents and other contracts.