Evergrande debt crisis: Chairman has sold $1.1 billion worth of his personal assets to prop up the company, Chinese state media reports

Xu has sold several houses in Hong Kong, Guangzhou and Shenzhen, as well as some private jets, the state-owned China Business News reported Tuesday, citing anonymous sources close to the matter.

The cash, which Xu has been pumping into Evergrande since the beginning of July, has been used to “maintain the basic operations of his huge business empire,” the paper reported, adding that the money has been used to pay staff salaries, interest payments on some bonds and cash owed to investors in its wealth product. The money has also gone toward finishing property projects across China.

“So far Xu Jiayin has been personally raising money to continue the life of Evergrande,” the media outlet wrote.

Evergrande did not immediately respond to a request for comment from CNN Business about the report.

Shares in the company rose as much as 4.3% in Hong Kong on Wednesday morning, though by the afternoon they had pared gains and were last up 1.1%. So far this year, the stock is down 80%.

Evergrande has been trying to shed assets to avoid defaults as it grapples with more than $300 billion liabilities, but its efforts have been met with mixed success.

In late September, the company announced that it would sell a $1.5 billion stake in Shenyang-based Shengjing Bank to a state-owned asset management company. But last month, it called off a plan to sell a majority stake in its property management unit for $2.6 billion to rival Hopson Development Holdings. Both companies said they were unable to agree on terms of the deal.

Speculation about Xu’s role in keeping the company afloat has mounted. Bloomberg, for example, reported late last month — citing anonymous sources — that Chinese authorities have told Xu to use his personal wealth to pay the company’s debts.
Xu can presumably only do so much. His personal wealth is valued at about $7.9 billion, according to the Bloomberg Billionaires Index — far less than the hundreds of billions of dollars that Evergrande carries in debt.

So far, though, the company appears to have avoided defaulting on any of its publicly traded offshore bonds by paying overdue interest before grace periods expire for each of those obligations.

It has another deadline coming up for an overdue payment on a dollar-denominated bond. The 30-day grace period for that bond expires November 29, according to Eikon Refinitiv.

Broader debt worries

Other Chinese property developers have also taken a hit as Evergrande’s debt woes continue, with their shares and bonds falling and rating agencies issuing more downgrades. China’s property sector has been suffering from a government campaign to curb excessive borrowing, which began last year.

S&P Global Ratings on Tuesday downgraded the credit rating of China Aoyuan Group, a major developer based in Guangzhou, to junk.

The rating agency said Aoyuan may not have sufficient cash for debt repayment and could face a liquidity crisis soon, as its property sales have plunged and its debt maturities are expected to pile up in 2022.

China's real estate crisis could threaten growth into 2022. Beijing's undeterred

The rating action followed similar moves by Fitch Ratings and Moody’s, which both downgraded Aoyuan because of increased liquidity risks facing the company.

China Aoyuan’s shares, which trade in Hong Kong, have plunged more than 30% in the past month.

Fitch Ratings on Tuesday also further downgraded the credit rating of troubled homebuilder Kaisa Group to “C” from “CCC-,” as it believed the firm has missed interest payments on several dollar-denominated bonds due earlier this month. Kaisa’s stock has been suspended from trading in Hong Kong since earlier this month.

A number of other developers are also teetering on the brink, with Shenzhen-based Fantasia Holdings and Beijing-based Modern Land having recently missed bond or loan repayments.

Alibaba Q2 earnings: Company to face investors as Beijing’s business crackdown grows

The company will report results for its most recent quarter on Tuesday.

Alibaba’s main business — e-commerce — has held up well during the coronavirus pandemic, soaring as people turn to online shopping to buy things without leaving their homes. The company has also benefited from continued economic strength in China, which averted the recession that pummeled most of the globe last year.

The company is expected to report revenue of 209 billion yuan ($32 billion) for the quarter, a 36% increase from a year earlier, according to data provider Refinitiv.

But the prospect of further scrutiny from Chinese regulators looms large.

In May, Alibaba (BABA) said it posted a loss of about $1.2 billion for its first quarter — a hit that was mainly due to a record $2.8 billion fine that Beijing imposed on the company after accusing it of behaving like a monopoly.
Joe Tsai, Alibaba Group’s co-founder and executive vice chairman, played down concerns when the fine was announced, saying that the company was “pleased” that it could “put this matter behind us.”

“With this penalty decision, we’ve received a good guidance on some of the specific issues under the anti-competitive law,” he told investors on a call at the time.

Beijing’s broader clampdown hasn’t let up. Alibaba’s New York-listed shares plunged nearly 14% during July as investors grew nervous about Chinese tech, including the ability of such companies to trade outside of China. (Alibaba also trades in Hong Kong; its dual-listing in 2019 was touted as a symbolic homecoming for the company.)
Shortly after ride-hailing giant Didi went public on the New York Stock Exchange at the end of June, Beijing banned it from app stores over cybersecurity concerns. The stock plunged, and is still trading well below its IPO price of $14 a share.
US securities regulators have also expressed concern about future Chinese public offerings, with the Securities and Exchange Commission telling staff last week to ask such firms to disclose more information before trading plans can be approved.
Beijing calls for calm after historic tech stock rout
Regulatory scrutiny on a broadening number of industries has also spooked investors. A stock market sell-off last week wiped out hundreds of billions of dollars in market value for several prominent Chinese tech companies, including Alibaba. That came as Beijing issued directives for education tech, food delivery and other sectors.
Chinese state media has since urged investors to stay calm, with one newspaper telling investors to “have confidence in the market.”

“A short-term shock does not change the nature of the long-term positive trend,” read a commentary published in the Securities Times last week. “China’s economy and markets are at an advantage in terms of its width and depth.”

— Paul R. La Monica, Laura He and Michelle Toh contributed to this report.

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