The Chinese government will station accountants and lawyers at China Evergrande, which has hired advisers to look into its liquidity problem, adding to fears of a China version of the Lehman Brothers fiasco.
Share prices of China Evergrande (3333) slid 12 percent, adding to the year-to-date dive of nearly 80 percent and closing at the lowest level since November 2014, with its listing units in Hong Kong plunging on the news.
China Evergrande New Energy Vehicle (0708) dived 25 percent, while Evergrande Property Services (6666) dropped 12 percent.
Watchdogs in Guangdong, Evergrande’s home province, dispatched a team last month from King & Wood Mallesons, a law firm whose specialties include restructuring, Bloomberg reported, citing people familiar with the matter.
Meanwhile, provincial officials are also sending additional financial advisers and accountants to assess the developer at the urging of Beijing, the report said.
Although senior leaders in the capital have yet to indicate whether they will allow Evergrande creditors to suffer major losses, bondholders are pricing in slim odds of rescue.
Guangdong officials have turned down at least one bailout request from Evergrande’s billionaire founder, Hui Ka Yan, who owns a controlling stake, the report said.
The developer expected a significant continuing decline in contract sales in September, it said in an exchange filing outlining the dire state of the company’s finances, with Evergrande warning that it faces tremendous liquidity strains.
The company said it has not made material progress on plans to sell stakes in its electric-car and property services units, adding that the planned disposal of its Hong Kong headquarters building has not been completed as expected.
Asset sales had been one of the most important pillars of Evergrande’s plan to escape its cash crunch.
China Evergrande had previously intended to sell the commercial building for HK$10.5 billion to Yuexiu Property (0123), reported before.
In Hong Kong, Hui stepped down as the director of a company that owns the HK$800 million luxury house at No 10 Black’s Link. The position was taken by Hui’s housekeeper, local media reported.
Some mainlanders called on China’s state assets regulator – the State-owned Assets Supervision and Administration Commission of the State Council – to bail it out.
Market watchers worried it would become another Lehman Brothers, which collapsed in 2008 amid the financial tsunami.
Evergrande has liabilities of 1.97 trillion yuan (HK$2.38 trillion).
Protesters gathered at the company’s Shenzhen headquarters for at least the third straight day yesterday, braving the rain to demand repayment on overdue wealth-management products.
It has introduced Houlihan Lokey (China) and Admiralty Harbour Capital as joint financial advisers to assess the group’s capital structure, evaluate liquidity and explore all feasible solutions to ease the current liquidity issue and reach an optimal solution for all stakeholders as soon as possible, the filing said.
“It looks like they are working on debt restructuring after no concrete results on asset disposals, and the first task is to stabilize the holders of wealth management products which could be a social issue,” said Daniel Fan, a credit analyst at Bloomberg Intelligence.
“It seems the developer is working on rescheduling pretty much all onshore debt, and the next step is to do the same for offshore investors.”
While the developer does not have any bonds maturing until 2022, it faces US$669 million (HK$5.22 billion) in coupon payments this year, including US$83.5 million due on September 23 for a dollar note.
Rating agency Fitch Ratings highlighted an increased chance of default on these interest payments when it slashed Evergrande’s ratings deeper into junk territory last week.
Lehman Brothers Holdings Inc was a global financial services firm founded in 1847.
Before filing for bankruptcy, it was the fourth-largest investment bank in the United States, with about 25,000 employees worldwide.
Lehman’s bankruptcy filing is the largest in US history, and is thought to have played a major role in the unfolding of the financial crisis of 2007-2008.
After Lehman Brothers filed for bankruptcy, global markets immediately plummeted.