Evergrande’s $32 Billion Pile of IOUs Adds to Liquidity Concerns

Bloomberg2021-07-08

Embattled developer ramps up commercial bill issuance Implied yields on some bills have climbed as high as 36% AsChina Evergrande Grouptries to quell concerns about its financial health, the property...

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Comments

Mm101
2021-07-08
Mm101
Yes
- Mm101:
  Like
- Mm101:
  Yes
BeBob
2021-07-08
BeBob
Like and comment
丰人
2021-07-08
丰人
Very good.
- 丰人:
  ？？
Dreamchaser9
2021-07-08
Dreamchaser9
Ok
EHG
2021-07-08
EHG
Like
Lyncia
2021-07-08
Lyncia
Hmmm

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While not technically classified as debt, Evergrande’s growing reliance on such financing -- known in China as commercial bills -- suggests the company faces mounting liquidity pressure as banks and bond investors increasingly shyawayfrom providing it with longer-term funds.\nEvergrande’s main onshore subsidiary had about $32 billion of commercial bills outstanding as of December, the most of any major Chinese real estate company. Some bills issued by its units are now trading in the secondary market at implied yields as high as 36%, after a series of missedpaymentsthis year. By comparison, Evergrande dollar bonds due 2025 yield about 25%.\n“The amount of Evergrande’s outstanding commercial bills is massive,” said Dong Ma, a Beijing-based partner at BG Capital, which specializes in high-yield bond investments. “It has apparently become a vital fundraising channel.”\nEvergrande’s turn toward short-term funding casts doubt on whether its widely touted deleveraging campaign has actually made its finances more sustainable. Even as the debt line item on its balance sheet has shrunk, total liabilities -- which includes commercial bills and other short-term payables -- grew to a record 1.95 trillion yuan ($301.6 billion) last year.\nWhile Evergrande has said it will make good on all its overdue payments, any sign the company is struggling to follow through could lead to a broader freeze in China’s $560 billion-plus commercial bill market.\nMissed payments would also weigh on Evergrande’s vast network of suppliers, which are among the biggest holders of the developer’s IOUs and have less scope to absorb losses than banks. Those risks could add pressure on Chinese authorities to provide support for Evergrande, though any such decision would likely be weighed against the government’s desire to rein in moral hazard.\nEvergrande Dwarfs Peers\nOutstanding commercial bills of China's top 10 developers by sales in 2020\nSource: Company filings\nNote: Excludes China Resources Land, which doesn't have breakdown on commercial bills\n“If Evergrande has serious payment difficulties, it would have a sweeping impact across the whole industry chain,” said Yan Yuejin, research director at Shanghai-based E-house China Research and Development Institute. “Lots of small suppliers’ liquidity would be affected.”\nEvergrande didn’t reply to a request for comment. The developer cut its total borrowings to about $88 billion in late June, down 20% since the end of last year. That allowed it to meet one of China’s “Three Red Lines” for property developers, metrics that determine whether the companies can take on additional debt.While Evergrande’s debt declined in the first half, its payables -- including commercial bills -- probably continued to increase, according to Zhou Chuanyi, an analyst with Lucror Analytics. The company’s total trade and bills payables rose 14% to 622 billion yuan last year, according to Fitch Ratings, whichdowngradedEvergrande’s credit rating by one notch to B in June.\nChina Chengxin International Credit Rating Co., the country’s largest credit risk assessor, added Evergrande’s onshore unitHengda Real Estate Groupand nine of the company’s onshore bonds to a watch list in June, partly due to concerns over past-due commercial bill payments.\nCommercial bills have become a popular financing tool in China’s real estate industry, which has become subject to a growing number of borrowing restrictions in recent years.\nWhat's moving markets\nBills come in many different forms, often depending on the specifics of a developer’s relationships with suppliers. In situations where the developer has a stronger bargaining position, it might agree to simply postpone immediate payment for a service without providing extra compensation. In other cases it may offer a sweetener, for instance by paying a supplier 1.1 million yuan in six months for 1 million yuan worth of services rendered today.\nSuppliers can sell their bills in the secondary market, where prices reflect market perceptions of creditworthiness. When bills trade at steep discounts to face value (or high implied yields), it suggests mounting concerns about repayment risk.\nImplied rates on some of Evergrande’s units are far higher than the 10% to 20% range typically seen for Chinese property companies, according to Essence Securities, a Chinese brokerage.\nUnlike investors in bonds and preferred shares who enjoy some priority in claiming assets, bill holders have little means to claim their payments upon a default. That’s partly why China’s central bank is asking some property developers to disclose their outstanding commercial bills monthly to regulators, local Chinese media reported in June.\nIt may also be why some holders of overdue Evergrande bills have become increasingly vocal as they try to pressure the developer to pay up.\nShanghai-listedSkshu Paint Co.said in a June 28 exchange filing that it held 51 million yuan in overdue bills owed by Evergrande units as of March 31 and that only 4% of the total was recovered by May 31.\nJust a day after Skshu released the filing, it said Evergrande had repaid the bills in full.\n“Commercial bills have previously gone largely unnoticed,” said Yan at E-house China Research. “But that is changing.”","kind":null,"is_publish_news":false,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":149652254,"gmtCreate":1625724933778,"gmtModify":1703747178276,"author":{"id":"3565081661382277","authorId":"3565081661382277","authorIdStr":"3565081661382277","name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565081661382277"},"htmlText":"Yes","listText":"Yes","text":"Yes","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/149652254","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5193746,"gmtCreate":1626066518438,"gmtModify":1663230850243,"authorId":3565081661382277,"author":{"id":3565081661382277,"authorId":3565081661382277,"name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":149652254,"type":1,"supId":0,"prevId":0,"content":"Like","text":"Like","html":"Like"},{"id":5158102,"gmtCreate":1625724943215,"gmtModify":1663230689728,"authorId":3565081661382277,"author":{"id":3565081661382277,"authorId":3565081661382277,"name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":149652254,"type":1,"supId":0,"prevId":0,"content":"Yes","text":"Yes","html":"Yes"}],"langContent":"EN"},{"id":149145053,"gmtCreate":1625711379772,"gmtModify":1703746894289,"author":{"id":"3585307651801295","authorId":"3585307651801295","authorIdStr":"3585307651801295","name":"BeBob","avatar":"https://static.tigerbbs.com/4c7fb1588c34a61b54c3059c16e50b4e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3585307651801295"},"htmlText":"Like and comment&nbsp;","listText":"Like and comment&nbsp;","text":"Like and comment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/149145053","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":149142447,"gmtCreate":1625711339489,"gmtModify":1703746892989,"author":{"id":"4088035849823630","authorId":"4088035849823630","authorIdStr":"4088035849823630","name":"丰人","avatar":"https://static.tigerbbs.com/35bfaa2970044533bc9763d63a71e1dd","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"4088035849823630"},"htmlText":"Very good.","listText":"Very good.","text":"Very good.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/149142447","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5321818,"gmtCreate":1627183171452,"gmtModify":1663231451139,"authorId":4088035849823630,"author":{"id":4088035849823630,"authorId":4088035849823630,"name":"丰人","avatar":"https://static.tigerbbs.com/35bfaa2970044533bc9763d63a71e1dd","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":149142447,"type":1,"supId":0,"prevId":0,"content":"？？","text":"？？","html":"？？"}],"langContent":"EN"},{"id":149140238,"gmtCreate":1625711070024,"gmtModify":1703746884692,"author":{"id":"3581782846197879","authorId":"3581782846197879","authorIdStr":"3581782846197879","name":"Dreamchaser9","avatar":"https://static.tigerbbs.com/f4f8f000953179179078bdd5e6f748b6","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3581782846197879"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/149140238","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":149140614,"gmtCreate":1625711061538,"gmtModify":1703746884529,"author":{"id":"3586941861951066","authorId":"3586941861951066","authorIdStr":"3586941861951066","name":"EHG","avatar":"https://static.tigerbbs.com/28e4734e50f795c3218330cbb6c3e9a0","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3586941861951066"},"htmlText":"Like&nbsp;","listText":"Like&nbsp;","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/149140614","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":149123096,"gmtCreate":1625710139915,"gmtModify":1703746856579,"author":{"id":"3573731744796242","authorId":"3573731744796242","authorIdStr":"3573731744796242","name":"Lyncia","avatar":"https://static.tigerbbs.com/49f028b5d2bdd6033e8767d4ec0ff621","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3573731744796242"},"htmlText":"Hmmm","listText":"Hmmm","text":"Hmmm","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/149123096","repostId":1147624382,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":80,"commentSize":11,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 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