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The Wall Street Publication > Blog > Markets > Evergrande Gets a New Reason to Worry
Markets

Evergrande Gets a New Reason to Worry

Editorial Board Published January 4, 2022
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Evergrande Gets a New Reason to Worry
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Major credit-rating firms declared Evergrande in default after it missed coupon payments.

Photo: hector retamal/Agence France-Presse/Getty Images

By

Jacky Wong

Jan. 4, 2022 6:57 am ET

Embattled Chinese property developer Evergrande EGRNF 6.68% isn’t starting the year in a festive mood.

The company said Tuesday that it had received an order from a local government to tear down 39 buildings on the Chinese tropical island of Hainan. Evergrande hasn’t disclosed why the Danzhou government ordered the demolition. Local media reported that the construction was approved illegally. Evergrande said the order won’t affect the rest of the development, on which it has spent 81 billion yuan, the equivalent of $12.8 billion, for more than 60,000 apartments.

As Evergrande’s troubles have moved into the spotlight, local authorities have probably stepped up their scrutiny of the developer, leading to nasty surprises like this one. The risk is yet another headache for Evergrande, which is already struggling with tight liquidity and evaporating sales.

Major credit-rating firms have already declared Evergrande in default after it missed coupon payments last month. The local government of Guangdong province, where Evergrande is based, stepped in last month to help manage its debt crisis.

The developer said Tuesday that contracted sales for 2021 were 443 billion yuan. That means its contracted sales from Oct. 20 to the end of the year amounted to only 720 million yuan, using previously disclosed figures. In comparison, its contracted sales for November and December in 2020 were around 90.7 billion yuan, implying a more than 99% year-on-year drop.

More broadly, China’s housing market remains in the doldrums. In December, contracted sales for 24 major property developers fell 31% from a year earlier, according to Morgan Stanley. There are signs that the market is stabilizing as Beijing has started to ease policy, especially for developers with lower leverage: On a month-on-month basis, contracted sales grew 15% last month. But companies that had overextended themselves, such as Evergrande, still seem to be out of luck.

Last year was a horrible one for Chinese developers that partied hard during the boom days. The year 2022 may not be much better.

The world’s most indebted real-estate firm Evergrande has embarked on a social media campaign to show construction has resumed and says it’s doing whatever it takes to deliver homes. WSJ compares these posts with ones from upset buyers. Photo Composite: Emily Siu

Write to Jacky Wong at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the January 5, 2022, print edition.

Contents
Major credit-rating firms declared Evergrande in default after it missed coupon payments.Jacky Wong
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