China Evergrande Group pledges to do everything it can to repay small retail investors who put their money into investment products from the debt-plagued group. But, that said, the chairman of Evergrande.
Still, there is significant uncertainty as a deadline for interest payment on a dollar bond expires on Thursday.
Hui Ka Yan’s statement came a day after the developer reached an agreement with domestic bondholders that prevented the group from defaulting. That move brought some relief to investors. Evergrande share, which has recently lost a lot of its market value, jumped on the Hong Kong stock exchange, gaining up to a third in market value in the meantime. The stock eventually closed nearly 20 percent higher.
The threat of bankruptcy of Evergrande, which is weighed down by a debt load of 260 billion euros, is keeping investors worldwide under the spell. There are fears that Evergrande’s problems will spill over to other real estate developers and China’s entire financial system. On Thursday, the company must pay $83.5 million in interest on a $2 billion bond. A week later is the next deadline, with an interest payment of $47.5 million on a bond.
The chairman urged executives in the company to ensure that the quality of property supply was in order. In addition, according to Hui Ka Yan, the redemption of asset management products owned by millions, mainly small investors, must also be arranged appropriately.
Meanwhile, pressure on the government to intervene is mounting. Homebuyers and small investors are getting increasingly angry because they’ve poured their savings into the company’s real estate and opaque wealth management products. The last thing Beijing wants is social unrest, experts say.
Foreign investors are likely to have a much harder time getting paid. These investors have less negotiating power vis-à-vis other lenders.
The problems in the real estate sector are why credit rating agency Fitch adjusted the growth forecast for the Chinese economy downwards. As a result, Fitch expects 8.1 percent growth this year, compared to 8.4 percent on a previous estimate. Next year, growth will come in at 5.2 percent against an earlier projection of 5.5 percent.