Two of China's largest housing developers are facing a financial disaster after missing their payment deadlines for the millions of dollars that they owe to global shareholders.
The Evergrande Group and Kaisa Group Holdings are both on the brink of default with only one looking to have a better chance of making a possible reversal from their current dilemma.
On Monday, Dec. 6, Evergrande came to the end of a 30-day moratorium for $82.5 million in interest it failed to disburse to overseas investors last month. The company is now the most indebted property developer in China with bills amounting to more than $300 billion.
Evergrande, in a statement issued on Dec. 3, confirmed that it might not be able to offset its interest payments – including its overdue debts amounting to $260 million. Evergrande's bondholders said on Tuesday, Dec. 7, that their interest payments have yet to arrive.
Kaisa is facing a similar problem, with the company unlikely to meet its offshore debt deadline to pay $400 million.
Evergrande set to become China's biggest defaulter
Evergrande's failure to deliver $82.5 million in interest payments last month is expected to cause a cross-default on its international bonds worth $19 billion. This put the real estate developer at risk of becoming China's biggest defaulter. (Related: China's Evergrande shares plummet as full-blown DEFAULT becomes inevitable.)
Kaisa's non-payment, meanwhile, will push its bond at 6.5 percent and bring it into technical default, which would then trigger cross-defaults on its offshore bonds amounting to nearly $12 billion. Kaisa is the largest holder of offshore debt among developers in China after Evergrande. It also became the first Chinese developer to default on an offshore bond way back in 2015.
With more than 1,300 real estate project to its name, Evergrande is one of the top property developers in China. The Chinese government has stated repeatedly that the dilemma of Evergrande can be controlled, and boosting its liquidity in the banking sector along with the property developer's plans to restructure its overseas debt will help reassure global shareholders.
According to a source, Evergrande has not given a statement to its investors about the missed payment.
The real-estate developer on Monday said that it has created a risk-management committee that will help in "mitigating and eliminating the future risks." This came about after creditors demanded $260 million payment, which it could not guarantee due to the lack of funds to repay its debt.
Chinese authorities immediately summoned Evergrande's chairman and reassured markets that any extensive risk will be controlled.
On Tuesday, rating agency S&P noted that the $260 million repayment demand showed that the liquidity of Evergrande is extremely weak with a default looming in March and April 2022.
Bondholders offload shares as Chinese property developers near financial collapse
Meanwhile, panicked bondholders offloaded shares amid fears that some of China's biggest property developers are close to a financial collapse. Speculations circulated that Evergrande will not be able to avail of new loans to pay its debt, sending the company's shares into a record low.
In recent months, Evergrande has been selling its assets to raise the money to pay its shareholders after borrowing £300 billion ($396.12 billion) to finance its 1,300 real estate developments in more than 280 cities in China.
A property industry crisis emerged in China after the government under President Xi Jinping launched an initiative last year to contain the excessive debt of real estate developers and the uncontrolled speculation of consumers.
Companies who acquired a large debt to expand found their money taps closed and struggled to complete projects, pay contractors and meet domestic and foreign repayments.
Kaisa became the latest real estate firm to scare investors when it declared last week that it failed to secure a debt swap that would have given the company more time to give its creditors shares in the company.
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