China Evergrande Subsidiary Under Investigation Again by Authorities... "Loss of Qualification for New Bond Issuance"

Chinese real estate developer Evergrande Group's subsidiary has lost its qualification to issue new bonds after being investigated by authorities. It is expected to face even greater difficulties in raising funds amid the risk of bankruptcy.

On the 24th, Evergrande announced through the Hong Kong Stock Exchange that "Evergrande Real Estate Group, a major subsidiary of the company, is currently under investigation, and therefore does not meet the qualifications to issue new bonds at this time." The company did not specify the exact charges it is facing.

This is not the first time an Evergrande Group official has been investigated. On the 16th, the Shenzhen Public Security Bureau revealed that an executive of Evergrande Financial Department Management (Evergrande Finance) was detained and under investigation. The executive is reportedly suspected of fraud. Evergrande Finance is an affiliate wholly owned by Evergrande Financial Holdings, which is under Evergrande Group.

With the difficulty in issuing new bonds, the group's situation amid business restructuring is likely to worsen. In the restructuring plan announced in March, the group revealed plans to convert maturing bonds into 12-year maturity bonds, among other measures.

Last month, the group applied for bankruptcy protection (Chapter 15) in a U.S. court to buy time for raising funds to repay debts. Evergrande affiliate Tianhe Holdings also filed for bankruptcy protection. Consequently, the meeting with creditors scheduled for the end of August was postponed. The delayed meeting was initially planned for the 25th-26th of this month but was postponed again on the 22nd.

Evergrande is a representative real estate developer that rapidly grew during China’s real estate boom in the 1990s and expanded so much by the mid-2010s that it ranked globally. However, the situation deteriorated after the Chinese government tightened financial regulations on real estate companies in 2021. The so-called ‘three red lines’?which restrict financing if a company fails to meet any or all of the conditions of a debt-to-asset ratio below 70%, net debt ratio below 100%, and cash-to-short-term debt ratio above 1?became a major obstacle.

With liquidity warning signs flashing, Evergrande’s cumulative losses over two and a half years from 2021 to the first half of 2023 reached 614.9 billion yuan. In March last year, its stock trading was also suspended.

This content was produced with the assistance of AI translation services.