Chinese central bank breaks silence over Evergrande crisis

-- Evergrande Group missed its October 11 deadline to pay investors in U.S. dollar-denominated debt 

-- PBOC official Zou Lan said that the situation was "controllable"

-- Home sales by China’s major developers fell sharply in September, which is typically a strong month

China’s central bank finally broke its silence on the ongoing debt crisis faced by the China Evergrande Group, terming the situation to be controllable, even as the property giant missed yet another payment to investors in U.S. dollar-denominated debt on October 11.

• At a news briefing, the head of financial markets at the People’s Bank of China (PBOC), Zou Lan, said that authorities and local governments were resolving the situation based on “market-oriented and rule-of-law principles.” He added that the central bank has asked lenders to keep the credit to the real estate sector “stable and orderly.”
• He explained why the company’s operations and finances deteriorated but said that the risk exposure of individual financial institutions to the developer wouldn’t be big.
• He said, “In recent years, the company failed to manage its business well and to operate prudently amid changing market conditions. Instead, it blindly expanded and diversified.”

Sinking real estate

The Evergrande crisis in China has kept investors on the edge. The Shenzhen, China-based group is expected to default on payouts totaling US$83 million on a 5-year USD-denominated bond of an initial size of $2 billion.

The Chinese property giant failed to meet a deadline to make an interest payment to offshore bondholders, and now has 30 days to make the payment before it falls into default.

READ MORE: What is Evergrande crisis? Why are world markets jittery over Chinese group’s likely default?

Another property developer, Fantasia Holdings Group failed to repay $205.7 million bonds, adding worries to China’s property development industry. Hong Kong-listed property management company, Country Garden Service Holdings said that Fantasia failed to pay $108 million for bond repayment. Fitch downgraded Fantasia’s rating from CCC- to B.

READ MORE: Chinese property developer Fantasia defaults on $205 million bond

Cleaning the mess

The central bank hasn’t directly addressed Evergrande’s challenges since the developer fell behind on dollar-bond payments last month, though it has said it would support the housing market.

Lan said they were urging Evergrande to step up its asset disposals and resume projects to protect the interests of home buyers, and that financial authorities, the housing ministry, and local governments would cooperate to provide funding support so projects could restart.

Meanwhile, he maintained that Evergrande’s financial troubles were an individual phenomenon. He attributed the stability in land and housing prices to signs of a generally healthy real-estate industry.

However, in September, Home sales by China’s major developers fell sharply, which is typically a strong month. Wall Street Journal reported that many big developers have reported lower sales figures for September, with many showing year-over-year declines of more than 20% or 30%.

(With inputs from Wall Street Journal)

Picture Credits: King World News