Chinese real estate mogul Hui Ka Yan is rapidly sliding down the wealth rankings. His net worth fell another $ 3.35 billion this week, as shares in his Evergrande fell 26%.
The Hong Kong-listed company’s shares have plunged 68% in the past year, and analysts say the once-resourceful mogul appears to be running out of options to avoid a growing debt crisis. It’s a dramatic turn for Hui, who was crowned Asia’s richest person just four years ago, when his net worth peaked at $ 45.3 billion. Today, his fortune currently stands at $ 17.2 billion and it is unclear how much further it could fall.
The besieged tycoon is struggling to reduce total debt that rose another 5% to a whopping 1.95 trillion yuan ($ 301.6 billion) last year. Hui has actually managed to get out of trouble at Evergrande in the past through various means, such as stock investing and selling debt, but this time it’s different, according to Shen Chen, partner of Shanghai Maoliang Investment Management.
“The Evergrande debt crisis is on the rise,” Shen says. “The company is definitely going to run into problems because it does not have access to new financing, nor can it have assets fast enough to raise funds.”
Investors, for example, fear that financial institutions will cut Evergrande’s funding and demand immediate repayments. Last week, a local court froze 132 million yuan in deposits held by Evergrande’s mainland subsidiary, Hengda Real Estate Group, at the request of creditor China Guangfa Bank. Evergrande has threatened to take legal action against the bank because the loan in question will not be due until March of next year.
Zhou Chuanyi, credit analyst at Singapore-based Lucror Analytics, said Guangfa’s action would likely be prompted by growing concerns about Evergrande’s ability to honor its debts. The company had only 158.8 billion yuan in cash and cash equivalents at the end of 2020, compared to 335.5 billion yuan in loans that were due in the next 12 months, according to its annual report. .
“Under normal circumstances, banks won’t go so far as to sue Evergrande,” she said. “But as creditors get more and more anxious, they will want to protect their money and the markets fear that more financial institutions will follow suit.”
Evergrande did not respond to email requests for comment. Meanwhile, Hui faces a stricter regulatory environment and his other borrowing options appear to be running out. Trust financing, which Fitch Ratings says accounts for about 40% of the company’s interest-bearing debt, is being drastically tightened in China. And as a company that continues to violate the country’s “three red lines” policy, which was introduced last year to reduce the systemic risk of excessive debt in the real estate industry, Evergrande cannot issue new obligations in the offshore. market this year.
The company managed to use its own funds to arrange a HK $ 13.6 billion ($ 1.75 billion) payment for bonds due in June, as well as interest payments on all other notes denominated in dollars, but the market relief was short-lived. Investors are still worried that Evergrande is simply swapping one form of debt for another. Its trade and other debts, including bills of exchange, increased 13.5% to 829.2 billion yuan last year.
Invoices, technically not classified as interest-bearing debt, allow Evergrande to pay suppliers at a fixed future date after having already received goods or services. Compared to investors in bonds or stocks, bill holders usually have a lower priority in claiming their payments. Evergrande had defaulted on commercial invoices several times in the past, before finally agreeing to pay construction companies in June.
“Suppliers are much less willing to accept commercial invoices from Evergrande now,” Zhou says. “When the business has money in its hands, it can simply choose to pay the other creditors first.”
Analysts say the billionaire can still raise funds by selling discounted properties and publicizing non-essential affiliates. It collected 321 billion yuan in cash from property sales in the first half of the year, according to unaudited results. Last year, it listed its real estate services unit in Hong Kong, raising $ 1.8 billion.
Now the company plans to make its bottled water unit, Evergrande Spring, public in Hong Kong, according to Bloomberg. But Shanghai Maoliang’s Shen says it’s unclear how investors would react, especially when the parent company is mired in its own financial woes.
He cites the results of HNA Group and chip giant Tsinghua Unigroup as examples of how the future of Evergrande could play out. Indebted companies are moving towards restructuring after debt defaults and past credit-fueled acquisitions failed to boost their businesses.
Electronics retailer Suning can also serve as a roadmap, according to Zhou of Lucror Analytics. Its former billionaire chairman Zhang Jindong resigned after losing control of the debt-strapped company. Earlier this month, Suning secured a $ 1.36 billion bailout from a state-led investor group that acquired a 16.96% stake. Zhang, a friend of Hui’s, once waived his right to a 20 billion yuan payment from Evergrande.
“Bringing in strategic investors is the best way for Evergrande,” she says. “But Hui might not want to give up control completely. He can end up giving stakes little by little.