Source:
https://scmp.com/business/china-business/article/3161985/evergrande-creditors-have-more-cause-concern-amid-reports
Business/ China Business

Evergrande creditors have more cause for concern amid reports some of its Hainan developments need to be demolished

  • The buildings set to be demolished, according to the reported order, are part of the Ocean Flower Island No2 complex
  • The Hainan troubles add to the already grave woes of the world’s most indebted real estate developer as it seeks a way out of debt crisis
A general view shows the Evergrande Center building in Shanghai on September 22, 2021. Photo: AFP

Creditors of indebted China Evergrande Group have more cause for concern after local media reported that the giant developer has been ordered to tear down some blocks at one of its mega projects in Hainan Province.

Chinese media reported that Evergrande, once China’s largest developer by sales but which is now struggling under a mountain of debt, has been asked to tear down 39 buildings at a development on the southern tropical island within 10 days, according to a local government notice.

An order was issued by the Danzhou Municipal People’s Government on December 30, 2021 stating that an illegally obtained permit for the buildings had been revoked and the buildings now need to be dismantled, according to the reports, including one from Cailian Press, an online media title under the state-backed Securities Times.

The buildings set to be demolished, according to the order, are part of the Ocean Flower Island No2 complex, which comprises 434,941 square metres and hosts 39 residential buildings. It is one of three developments on an artificial archipelago in Danzhou, two hours’ ride by car from Hainan’s capital city Haikou.

“I don’t believe [this] … Now the so-called assets of Evergrande are required to be demolished by the government and will be worth nothing,” said Michael, a buyer of a wealth management product in default from Evergrande and who was offered property as a part repayment option. He declined to give his full Chinese name.

“Who knows whether more of its projects will be torn down and what will Evergrande use to pay us? There is just no hope.”

Evergrande did not immediately respond to a request for comment by the Post on Monday.

The Hainan troubles add to the already grave woes of the world’s most indebted real estate developer. Evergrande’s liabilities are estimated at around 1.97 trillion yuan (US$309.3 billion). Missed payments on wealth management products and bonds have already scared away many investors and put potential buyers off its various projects under construction.

Evergrande issued a filing to the Hong Kong stock exchange on Monday morning saying that its shares will be temporarily suspended from trading pending an announcement containing inside information.

Evergrande initiated the Ocean Flower Island complex in 2012 after it acquired a permit to develop the area and said that it had invested around 160 billion yuan by 2019 to reclaim the sea and develop three artificial islands with tourism parks, retail and commercial sites and conference and exhibition centres.

However, in 2019 the Hainan provincial government investigated and addressed violations of laws and regulations related to Ocean Flower Island, and imposed administrative fines of 215 million yuan on Evergrande.

The Hainan government announced last November that it had withdrawn sale permits for 39 blocks on Ocean Flower Island No2 relating to 2,716 residential homes and 123 shops, and said it had terminated sales contracts on 328 units which had already been sold.

The government said that all 39 buildings would be used as hotels, offices, a dormitory and to provide affordable homes for “talent”.

Evergrande has some US$2 billion in US dollar bonds maturing in March and another US$1.045 billion maturing in April. Last Friday it dialled back payment plans on billions of dollars of overdue wealth management products as its liquidity crisis worsened.

Evergrande Wealth Management said on Friday that it will pay principal first on the overdue products, with all investors receiving 8,000 yuan per month until February. This replaced the company’s previous plan, unveiled in mid-September, in which it promised to pay 10 per cent of principal and interest in the month when the products were due, and another 10 per cent in each quarter after that.

“It basically means it will take 100 months [to repay creditors]. By that time, the company may not even exist,” said Michael, the wealth management product investor.