China summons Evergrande chairman after debt repayment warning

The Chinese administration, on Friday, summoned the founder of Evergrande after the realtor firm issued a statement warning it might not have sufficient funds to meet its financial obligations. The property seller ranked number 2 in the country last year. But, its debts have exploded in recent years as it borrowed to finance its various pursuits. At present, the firm is drowned in a US$300 crore debt, according to a report by CNN. 

On 3 December, the Shenzhen based company, in a filing with the Hong Kong Stock Exchange, warned that there was “no guarantee” that it will have sufficient funds to continue to perform its financial obligations.  About the same, it warned its investors to “exercise caution.” Soon afterwards, the Guandong provincial government  said it had “immediately summoned”  Chairman Xu Jianyin, in addition to sending a working group to Evergrande Real Estate Group to supervise and promote “enterprise risk management.’ 

In a statement, Evergrande said,  “Shareholders of the Company and other investors should note that it is uncertain whether the Group could successfully implement the measures to ease the liquidity issues as mentioned in this announcement. Shareholders of the Company and other investors are reminded to exercise caution when dealing in the securities of the Company.” 

What is the crisis? 

China's second-largest property developer has been reeling under debt since the Communist government tightened limits on corporate debt levels. The crisis over Evergrande began in 2020 when Beijing, worried by sprawling debt in the real estate industry, brought in new rules to control the amount owed by giant developers. The company hit an initial stumbling block last year to meet the interest payments on its debts. However, now, things have gone from bad to worse as its share price has tumbled and its bonds have been downgraded by global credit rating agencies. 

Evergrande’s chairman and founder Hui Ka Yan has said that now it plans to try to secure extensions for its debts and “other alternative arrangements” with its creditors. However, Hui also added that there is “no guarantee” that the group will be able to meet its financial obligations. As per reports, last week, Evergrande had been granted a three-month extension on another of its debts after agreeing to provide extra collateral. 

Image: AP