After Evergrande Group failed to fulfill a $260 million private placement debt, the official immediately sent a working group to move in. Industry insiders analyze that the official will adopt the “medium control” mode, so that the company’s management can operate normally, and the working group plays the role of coordination and supervision, rather than a full takeover.
Evergrande announced in the evening of the 3rd on the Hong Kong Stock Exchange that it had received a notice of repayment of US$260 million private placement debt, and that “in view of the current liquidity situation, the Group is not sure whether it has sufficient funds to continue to meet its financial obligations”.
Immediately after Evergrande’s announcement, the Guangdong government interviewed Hui Kayan, the founder of Evergrande, and announced that it had agreed to send a working group to Evergrande at its request to maintain normal operations.
The Chinese financial magazine Caijing quoted people who had participated in the debt restructuring of real estate developer Huaxia Happiness as analyzing that the working group would probably adopt a “middle control” model after it was stationed in Evergrande, allowing the company’s management to operate normally while the working group would act as a coordinator and supervisor. Role
This person explained that Evergrande is facing serious debt problems and heavy delivery tasks, the government cannot let his (Evergrande) management stand idly by. “In addition, to ensure the delivery of buildings, the government also needs Evergrande management support, after all, building houses to deliver buildings, Evergrande’s own executives are more professional.”
A lawyer who has represented a number of similar businesses in the real estate industry mentioned in the report that a government working group would step in to communicate with domestic investment institutions to try to avoid a concentration of domestic creditors claiming early maturity of debts.
In addition to the “medium control” model, there are two other implementation models: “strong control”, in which the government task force takes over all the company’s assets and decisions on handling debts, such as HNA. The other is “weak control”, which means that the government only sends a small number of staff and most of the work is done by professional lawyers and accountants hired from outside.
The report also quoted a former person related to Evergrande’s operation to reveal that Deloitte, an international accounting firm, had conducted statistics on Evergrande’s assets and liabilities in the second half of this year and concluded that it was “solvent”, but the Guangdong government still had doubts about it and had assigned another investment bank, CICC, to sort out Evergrande’s assets and liabilities again.
In addition to dealing with the debt problem, another major task faced by the working group after it moved in is to “ensure the delivery of the building”.
The report pointed out that although Evergrande claimed to resume work and production, some construction sites in the Pearl River Delta region are still understaffed and the progress of the project is slow, and some buyers are dissatisfied with the slow delivery of the building and demand compensation.
The report mentions that since August this year, some local governments have instructed City Investment Corporation (local government investment enterprise) to study the substantive plan to intervene in Evergrande’s project. After the intervention of the working group, the speed of the city investment company taking over these construction cases may be accelerated.