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China Evaluates Ways to Contain Evergrande Financial Risks

China Evaluates Ways to Contain Evergrande Financial Risks

China’s top financial officials are evaluating the risks posed by China Evergrande Group, according to people familiar with the matter, amid heightened investor concern that the world’s most indebted developer faces a cash crunch.

The Chinese cabinet and its financial stability committee, chaired by Vice Premier Liu He, have discussed Evergrande without making any decisions on whether to intervene, the people said. Some regulators are considering options to support the developer, such as directing state-owned companies to take stakes in Evergrande or giving the company a green light for its proposed listing of an electric-vehicle unit in China, one of the people said.

The discussions underscore the degree to which Evergrande’s debt challenges have alarmed senior government officials. The property behemoth, controlled by billionaire Hui Ka Yan, has a complex web of liabilities that includes $88 billion owed to banks, shadow lenders and individual investors across the country. Evergrande has also borrowed $35 billion from bondholders around the world and received down payments on yet-to-be-completed properties from more than 2 million homebuyers.

China Evaluates Ways to Contain Evergrande Financial Risks

It’s unclear whether authorities played any role in an agreement announced by Evergrande on Tuesday that will see some investors waive a looming repayment deadline at the center of market concerns over the company’s liquidity.

Evergrande and China’s State Council information office didn’t immediately respond to requests seeking comment. China’s Financial Stability and Development Committee, part of the State Council, is the top government body overseeing the nation’s financial stability. Vice Premier Liu is President Xi Jinping’s main economic adviser.

China Evaluates Ways to Contain Evergrande Financial Risks

While Evergrande’s massive debt pile has made it too risky for some investors, others are betting Chinese leaders will deem the developer too big to fail.

Speculation that authorities will help the company solve any liquidity problems is one reason why its shares and bonds have rallied over the past two days. Prices for both tumbled last week after reports that Evergrande had warned provincial officials of a looming cash crunch, citing its obligation to return money to some strategic investors if it fails to win approval for a backdoor listing of its main real estate assets in China by Jan. 31. Evergrande has dismissed the reports as based on rumors and “fabricated” documents.

More on Evergrande:
Here Are Evergrande’s Debt Maturities in the Next Two Months
Lombard Odier Joins Investors Buying Evergrande Bonds After Rout
Asia’s Junk Bond Giant Is Threatening Already Fragile Markets
Evergrande’s Race for Cash Could Avert Nightmare Scenarios (2)

China’s government has a long history of bailing out systemically important companies to maintain financial stability. While policy makers have in recent years sought to instil more market discipline and reduce moral hazard, the economic shock caused by the Covid-19 pandemic has refocused their attention on stability.

©2020 Bloomberg L.P.

With assistance from Bloomberg