Chinese creditors have sued China Evergrande for more than $ 13 billion in allegedly overdue payments as domestic companies owed money through the besieged race of developers against offshore bondholders to secure repayment.
A Chinese court tasked with handling civil suits against Evergrande has accepted 367 cases with claims totaling 84 billion Rmb ($ 13.2 billion), according to official records reviewed by the Financial Times. The claims were submitted between August 24 and December 9, when the group was declared in “limited default” by Fitch Ratings.
Analysts said the timeline of claims shows domestic creditors have lost confidence in the ability of Evergrande, the world’s most indebted developer, to repay debts long before the declaration of default.
“Creditors are rushing to sue Evergrande so that they are in a better position to recover their money in the event of a debt restructuring,” said Bo Zhuang, Singapore-based analyst at Loomis Sayles, an asset manager . “This is especially true when all loans are not treated the same. “
The influx of creditors’ claims began when the central bank criticized Evergrande’s management in August for its debt crisis, causing the group’s sales to collapse and further restricting its access to finance. Days later, Evergrande warned he was in danger of defaulting.
Evergrande reported sales of Rmb 15.3 billion in the three months to Nov. 30, according to Shanghai-based consultancy CRIC, up from Rmb 228 billion in the same period last year.
The collapse of Evergrande rocked global markets and raised concerns about a spillover into the real estate sector, a key driver of growth in the world’s second-largest economy.
In August 2020, Beijing issued strict debt limits known as the “three red lines” which led to a tightening of liquidity in the country’s real estate sector.
Officials have warned state banks not to help over-leveraged developers like Evergrande, but have asked them to extend loans to less indebted real estate groups in a bid to ease pressure on the real estate industry. The industry is estimated to account for around a third of the country’s total economic output.
“There is no way to repay so many creditors with our limited resources,” said an Evergrande executive, who asked not to be identified. “We’ll let the judges decide who gets paid and how much. “
Evergrande also issued offshore bonds totaling $ 19 billion. International creditors will compete with domestic creditors to secure the repayment of the cash-strapped group.
State banks have been Evergrande’s most aggressive creditors. More than 40 lenders, ranging from China’s “big four” banks such as the Agricultural Bank of China to small regional lenders, are suing overdue loans totaling Rmb 22 billion, court records show.
A government policy adviser said the banks’ exposure was worse than reported as many were reluctant to publicize their potential Evergrande losses by taking legal action. “The fall of Evergrande will have a bigger impact than expected on the Chinese financial system,” the adviser said.
The state-owned construction groups are suing Evergrande for Rmb 16.4 billion, complicating the government’s efforts to secure the completion of the group’s existing projects. Many projects have been funded by prepayments from home buyers.
“We cannot continue construction when our workers have not been paid for months,” said an executive from the Hefei Construction and Engineering group in central Anhui province, which is suing Evergrande for Rmb 229 million. missed payments.
Shadow lenders, including trust companies and manufacturers who have loaned Evergrande money at high interest rates, are also fighting to get their loans back.
According to court records, 19 of the cases are “clandestine loan disputes” involving non-traditional creditors, including hotels, metal traders and pharmaceutical companies.
A person familiar with Evergrande’s borrowing from shadow banking said the developer and its subsidiaries have started to look to private lending – some with annualized interest rates as high as 73% – from wealthy local businesses. in cash in April. “Evergrande had no other options,” the person said.
As lawsuits escalate, creditors face uncertain collection prospects. The central government has established rules for corporate restructuring, but political factors, such as the intervention of local governments, influence the process.
“The top priority for local authorities is to ensure that all Evergrande projects [in their city] are completed and local creditors are paid, ”said the person familiar with Evergrande borrowing from shell lenders. “They don’t mind doing it at the expense of other creditors. ”
Additional reporting by Xinning Liu in Beijing, Tom Mitchell in Singapore and Andy Lin in Hong Kong