As Evergrande trims offshore debt and rebuilds investor confidence, SMEs and banks are overlooked in payment queue

Analysts say local banks and SMEs are high up in the pecking order, even as state regulators have not openly expressed their preferences

Evergrande’s unpaid dues to its small contractors went viral on social media earlier this year, even when it was able to prepay offshore bondholders

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The entrance to China Evergrande’s offices in Wan Chai, Hong Kong. Photo: Bloomberg

Published: 9:30am, 29 Jul 2021Updated: 11:56am, 15 Sep 2021

China Evergrande’s creditors face uncertain times ahead. The world’s most-indebted developer has to navigate through choppy waters, including political concerns, before it can steady itself after a huge beating in stock and bond markets over the past five months.

Billionaire chairman Hui Ka-yan has taken efforts to reduce debt and shore up market confidence after it came in Beijing’s cross hairs for its massive borrowings and was prevented from getting new loans in the second half last year.

Some of the measures included early redemption of purchase offshore bonds and deep discounts on home sales to boost its cash flow. A special dividend payout to shareholders, audacious at a time of crisis, has since been scrapped.

The Shenzhen-based developer has seen its debt fall to nearly 570 billion yuan (US$87.7 billion) from a peak of 870 billion yuan in 2020. Its net debt-to-equity ratio has dropped below 100 per cent, in line with one of the central bank’s “three red lines” deleveraging campaign. Still, there are concerns it may have put local banks and small suppliers at the back of the queue among creditors.

“The situation has not turned brighter even after it met [one of] the three red lines,” said Zhou Chuanyi, a credit analyst at Lucror Analytics in Singapore. “Cutting debt is a step in the right direction, but we are not sure whether the government will prioritise which debts it would like the company to repay.”