Contagion fears as loans are called on China's Evergrande, the world’s most indebted developer

The country’s second biggest builder has debts of around €250bn, as much as the Irish State

The Vertex residential project developed by China Evergrande, right, in the Cheung Sha Wan area of Hong Kong, China, on Friday, July 23, 2021. HSBC Holdings Plc and Bank of China Ltd.’s Hong Kong unit are reconsidering their decisions to halt mortgages for China Evergrande Group's unfinished residential properties in Hong Kong, after the city’s de facto central bank questioned the moves, according to people familiar with the matter. Photographer: Lam Yik/Bloomberg

The Vertex residential project developed by China Evergrande in Hong Kong. Photographer: Lam Yik/Bloomberg

Signage is displayed outside the China Evergrande Centre in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who've lent the world's most indebted developer more than $120 billion. Photographer: Chan Long Hei/Bloomberg

Two men stand in front of an advertisement for Evergrande Life Insurance Co. inside the Hainan Boao Lecheng International Medical Tourism Pilot Zone in Boao, China, on Saturday, March 25, 2017. In 2013, the provincial government of Hainan, often known as China's Hawaii, earmarked more than 1,600 acres of fertile farm land along a river flowing to its eastern coast for a medical tourism hub. Photographer: Qilai Shen/Bloomberg

A pedestrian walks past the China Evergrande Centre in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who've lent the world's most indebted developer more than $120 billion. Photographer: Chan Long Hei/Bloomberg

The Vertex residential project developed by China Evergrande, right, in the Cheung Sha Wan area of Hong Kong, China, on Friday, July 23, 2021. HSBC Holdings Plc and Bank of China Ltd.’s Hong Kong unit are reconsidering their decisions to halt mortgages for China Evergrande Group's unfinished residential properties in Hong Kong, after the city’s de facto central bank questioned the moves, according to people familiar with the matter. Photographer: Lam Yik/Bloomberg

The Vertex residential project developed by China Evergrande in Hong Kong. Photographer: Lam Yik/Bloomberg

Signage is displayed outside the China Evergrande Centre in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who've lent the world's most indebted developer more than $120 billion. Photographer: Chan Long Hei/Bloomberg

Two men stand in front of an advertisement for Evergrande Life Insurance Co. inside the Hainan Boao Lecheng International Medical Tourism Pilot Zone in Boao, China, on Saturday, March 25, 2017. In 2013, the provincial government of Hainan, often known as China's Hawaii, earmarked more than 1,600 acres of fertile farm land along a river flowing to its eastern coast for a medical tourism hub. Photographer: Qilai Shen/Bloomberg

A pedestrian walks past the China Evergrande Centre in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who've lent the world's most indebted developer more than $120 billion. Photographer: Chan Long Hei/Bloomberg

September 04 2021 02:30 AM

At least two of China Evergrande Group’s largest non-bank creditors have demanded immediate repayment of some loans, according to people familiar with the matter, adding to liquidity strains at the world’s most indebted property developer.

The two creditors are trust companies, which pool money from wealthy individual investors and are a major source of financing for Evergrande and other Chinese developers.

The trusts sent repayment notices to Evergrande over the past two months after becoming concerned about the property giant’s financial health, the people said, asking not to be identified as the details are private. Trust loans often include terms that allow creditors to demand early repayment if certain conditions are met, such as sales targets, ratings downgrades or lawsuits.

One of the trusts has so far received only a small portion of the money owed by Evergrande, one of the people said. The size of the loans involved couldn’t immediately be learned.

It’s the latest sign that Evergrande is struggling to make good on $305bn (€256bn) of liabilities to banks, shadow lenders, suppliers and homebuyers. The developer’s bonds have plummeted to levels that suggest investors are bracing for a default, and its three main listed entities have shed more than $110bn in combined market value since mid-February. While Chinese regulators have urged the company to resolve its debt woes, the government has so far stayed silent on whether it will provide financial support.

Evergrande didn’t immediately respond to a request for comment.

Trusts have been a significant source of funding for Evergrande, accounting for about 40pc of borrowings at the end of 2019, the last year the company disclosed the figures.

While trust lending to developers has slowed in the past year, Evergrande has about 46 billion yuan (€6bn) of such loans maturing in 2021, according to data complied by Yongyi Trust Research. About 11 billion yuan is due in the fourth quarter.

A failure to repay could prompt at least one trust to call back all its loans, a person familiar with the matter said, though it’s unclear how Evergrande would respond. Court cases against the company and its affiliates are being centralised in Guangzhou, a city in Evergrande’s home province of Guangdong, making it more difficult for creditors to freeze assets or pursue repayment through other local courts.

Evergrande this week warned it risks defaulting on borrowings if its efforts to raise cash fall short. Despite selling stakes in prized assets and offering steep discounts to offload apartments, the developer reported a 29pc slide in profit for the first half. Its property and electric-vehicle units posted losses, while some vendors have suspended work on projects due to unpaid bills.

“The group will do its utmost to continue its operations and endeavor to deliver properties to customers as scheduled,” Evergrande said.

The recent turmoil has drawn government attention. Beijing instructed authorities in Guangdong to map out a plan to manage the developer’s debt pile, people familiar with the matter said last month. The provincial government is coordinating with banks, other creditors and potential buyers of Evergrande’s assets.