One of China’s largest real estate developers, Evergrande Group, has asked the government for help, further fueling concerns about China’s housing market.
According to widespread media reports, a document circulating on the Chinese net last week shows that Evergrande asked the Guangdong government for help in restructuring its assets, or else its debt would be so high that it would break its capital chain. Although Evergrande later denied the authenticity of the document, it was already believed that the company was in debt distress.
According to Reuters, ANZ China economist Wang Rui and others recently published a report indicating that concerns about developer liquidity and leverage have increased as a result of the Evergrande incident; 20% of China’s A-share listed real estate companies now have leverage ratios that exceed the “three red lines” set by the People’s Bank of China for financing real estate companies. “
The report suggests that the Chinese government may be firm on limiting the leverage of real estate companies; however, there is no systemic risk in China’s real estate market.
Evergrande made a number of announcements over the weekend, indicating its financial soundness. After the stock market opened on Monday, Evergrande’s stock price and bonds have stabilized.
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