China Global Television Network, a television channel of China Media Group, in the hands of the state, has just announced that the negotiation between Hopson Development and Evergrande to take over 51% of the subsidiary Property Services is suspended. It would have been about injecting 40 billion Hong Kong dollars (5.14 billion dollars) into the subsidiary of the Chinese real estate giant, weighed down by 305 billion dollars of debt, suspended from trading for days just waiting for a relevant communication, or Hopson’s intervention as a white knight.
This, however, did not happen. The news was published after the positive closure of the Chinese stock exchanges. The television channel quotes the financial news agency cls.cn, explaining that “the reason is rather complicated. It is likely that the shareholders of Evergrande Real Estate have not reached a consensus”. It is not yet known whether the two sides will resume negotiations. Meanwhile, the giant of the brick has not paid several coupons in dollars of bonds expired since the end of September and if it does not repay creditors by 23 October it risks collecting a judgment of default by the rating agencies.
Add to this that Sinic Holdings, according to Bloomberg reports, in line with last week’s warning, defaulted on a $ 246 million bond maturing yesterday. The default of the luxury real estate group adds to that of Fantasia Holdings in early October.
On the bond front, however, the Evergrande group seems to have always repaid the interest due on a bond in yuan, therefore aimed at the local investor market, not at the international dollar bond market. This was written by the Reuters agency from Asia, citing several sources with knowledge of the facts. The coupon on Hengda Real Estate’s 5.8% local bond maturing in 2025 for 121.8 million yuan ($ 19 million) is expected to have been paid. It seems that China for now is differentiating the treatment towards domestic investors (who are reimbursed also to avoid riots) from foreign ones (who have not received anything for now).
The failure of the negotiations between Evergrande and Hopson brings attention to the weight of the brick in China, around 28% of the GDP of the second largest economy in the world. Barclays has calculated that the sector is worth over 50,000 billion dollars, much more than the US one, while Nomura has always highlighted how China’s real estate debt, of over 5,000 billion dollars, is higher than Japan’s GDP in 2020. With a Country that has already slowed down the race and the brick at risk of severe stress, what will be the economic repercussions on world growth
In fact, in the third quarter of the year, China’s gross domestic product grew by 4.9% compared to 2020, down from the 7.9% reported in the previous three months and compared to a median forecast of 5% in a survey by Bloomberg on a panel of economists. Also, as recently as last Friday, President Xi Jinping asked for more property taxes. The politician wants to see progress on a taxation that could help reduce wealth inequality as the country strives to achieve the goal of “common prosperity” by the middle of the century.
In an essay in the Communist Party’s Qiushi magazine, published by the official Xinhua news agency, Xi asked China to “proceed steadily and vigorously” on the property tax program. The government has pondered the issue for a long time, over a decade, but has faced resistance from stakeholders, including local governments themselves, who fear the move could erode real estate value or trigger a strong sell-off in the market. (All rights reserved)
