BEIJING – China’s central bank governor Yi Zhang on Thursday expressed Beijing’s unwillingness to intervene to save the troubled real estate giant Evergrande.
He described the risks faced by the company as existing in the market, and that they will be dealt with proportionately and “in accordance with market principles and the rule of law.”
He stressed that the Hong Kong Stock Exchange, where the troubled company’s shares are traded, is a mature financial center, and has an effective system and clear rules and procedures to deal with various issues.
He said that “the short-term risks to certain real estate companies” will not affect the normal financing in the market in the medium and long term.
He also stressed that companies and shareholders are obligated to deal proportionately with their “debts” in accordance with the law and market regulations, as well as that they must protect the interests of creditors in a fair and legal manner.
This comes as the Evergrande Group is officially classified for the first time as “defaulted”. The credit rating agency, Fitch, downgraded the company to “defaulted on certain obligations” after it defaulted on payments that expired on Monday.
The development marks the beginning of the end for the sprawling real estate empire launched 25 years ago by founder Hui Ka Yan, which would set off a long battle over who gets the money from creditors from what’s left of the company.
The development also poses a challenge to the Chinese government’s efforts to prevent the contagion of debt default in the real estate sector. Evergrande has been suffering from a severe crisis for months, and is the real estate developer with the highest debts around the world. And it urgently needed to provide financing to pay off obligations to banks, suppliers and bondholders on time. Its total debt is currently estimated at $300 billion. Its share has lost about 88% of its value since the beginning of the year.
State media reported that the Guangdong provincial government, where the company is located, sent a team of financial analysts to assess the size of the debt and the risks.
And recently, the crisis that the giant Chinese real estate company is experiencing has begun to move to more real estate companies in the market.
Yesterday, the trading of the shares of “Caisa Group Holdings” on the Hong Kong Stock Exchange was suspended, amid concerns about the company’s ability to meet its financial obligations.
The group, which is ranked 27th among real estate developers, has a bond repayment of $400 million.
Informed sources said yesterday that a group of bondholders suggested a delay, but that the next steps were not decided yet.
The company’s stock has lost 75% of its value since the beginning of this year.
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