The world is still waiting to find out what will happen to troubled Chinese conglomerate Evergrande and its enormous mountain of debt.
The property developer’s debt crisis is a major test for Beijing. Some analysts fear it could even turn into China’s Lehman Brothers moment, sending shockwaves across the world’s second biggest economy. Real estate — and related industries — account for as much as 30% of Chinese GDP.
This week, investors experienced whiplash as the firm met one crucial debt deadline, but then failed to address another. Shares shot up one day, and down the next.
The coming days and weeks will be critical. While Evergrande has a grace period of up to 30 days on an interest payment of nearly $84 million that was due Thursday, it’s supposed to make a payment on another bond next week.
That’s fueling speculation over what could happen next, with potential outcomes including a Beijing-backed bailout, restructuring or default.
Here’s what you need to know about Evergrande, and how it got to where it is now.
WHAT IS EVERGRANDE?
Evergrande is one of China’s largest real estate developers. The company is part of the Global 500 — meaning that it’s also one of the world’s biggest businesses by revenue.
Listed in Hong Kong and based in the southern Chinese city of Shenzhen, it employs about 200,000 people. It also indirectly helps sustain more than 3.8 million jobs each year.
The group was founded by Chinese billionaire Xu Jiayin, also known as Hui Ka Yan in Cantonese, who was once the country’s richest man.
Evergrande made its name in residential property — it boasts that it “owns more than 1,300 projects in more than 280 cities” across China — but its interests extend far beyond that.
Outside housing, the group has invested in electric vehicles, sports and theme parks. It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China.
In 2010, the company bought a soccer team, which is now known as Guangzhou Evergrande. That team has since built what is believed to be the world’s biggest soccer school, at a cost of US$185 million to Evergrande.
Guangzhou Evergrande continues to reach for new records: It’s currently working on creating the world’s biggest soccer stadium, assuming that construction is completed next year as expected. The $1.7 billion site is shaped as a giant lotus flower, and will eventually be able to seat 100,000 spectators.
Evergrande also caters to tourists through its theme park division, Evergrande Fairyland. Its claim to fame is a massive undertaking called Ocean Flower Island in Hainan, the tropical province in China commonly referred to as the “Chinese Hawaii.”
The project includes an artificial island with malls, museums and amusement parks. According to the group’s most recent annual report, it started taking customers on a trial basis earlier this year, with plans for a full opening “at the end of 2021.”
HOW DID IT RUN INTO TROUBLE?
In recent years, Evergrande’s debts ballooned as it borrowed to finance its various pursuits.
The group has gained infamy for becoming China’s most indebted developer, with more than $300 billion worth of liabilities. Over the last few weeks, it’s warned investors of cash flow issues, saying that it could default if it’s unable to raise money quickly.
That warning was underscored this month,when Evergrande disclosed in a stock exchange filing that it was having trouble finding buyers for some of its assets.
In some ways, the company’s aggressive ambitions are what landed it in hot water, according to experts. The group “strayed far from its core business, which is part of how it got into this mess,” said Mattie Bekink, China director of the Economist Intelligence Unit.
Goldman Sachs analysts say the company’s structure has also made it “difficult to ascertain a more precise picture of [its] recovery.” In arecent note, they pointed to “the complexity of Evergrande Group, and the lack of sufficient information on the company’s assets and liabilities.”
But the group’s struggles are also emblematic of underlying risks in China.
“The story of Evergrande is the story of the deep [and] structural challenges to China’s economy related to debt,” said Bekink.
The issue isn’t entirely new. Last year, a slew of Chinese state-owned companies defaulted on their loans, raising fears about China’s reliance on debt-fueled investments to support growth.
And in 2018, billionaire Wang Jianlin was forced to downsize his conglomerate, Dalian Wanda, as Beijing clamped down on firms borrowing heavily to push overseas.
In a recent note,Mark Williams, Capital Economics’ chief Asia economist, said that Evergrande’s collapse “would be the biggest test that China’s financial system has faced in years.”
“The root of Evergrande’s troubles — and those of other highly-leveraged developers — is that residential property demand in China is entering an era of sustained decline,” he wrote. “Evergrande’s ongoing collapse has focused attention on the impact a wave of property developer defaults would have on China’s growth.”
HOW IS IT TRYING TO MOVE FORWARD?
Evergrande said Wednesday in a filing with the Shenzhen Stock Exchange that issues regarding a payment on a domestic yuan bond have been “settled through negotiations.” The amount of interest it owed on the bond is about 232 million yuan ($36 million), according to data from Refinitiv.
While the news may placate investors, many questions still remain unanswered. Evergrande did not elaborate on the terms of the payment in its statement, and interest worth $83.5 million on a dollar-denominated bond also fell due Thursday. That deadline came and went without an update from the company.
On September 14, Evergrande announced that it had brought on financial advisers to help assess the situation.
While those firms are tasked with exploring “all feasible solutions” as quickly as possible, Evergrande has cautioned that nothing is guaranteed.
So far, the conglomerate has struggled to stem the bleeding, and has failed to find buyers for parts of its electric vehicle and property services businesses.
As of that filing, it had made “no material progress” in its search for investors, and “it is uncertain as to whether the group will be able to consummate any such sale,” it said.
The company has also been trying to sell off its office tower in Hong Kong, which it bought for about $1.6 billion in 2015. But that has “not been completed within the expected timetable,” it said.
HOW ARE INVESTORS REACTING?
Evergrande’s problems spilled onto the streets this monthwhen protests broke out at its headquarters in Shenzhen. Footage from Reuters showed scores of demonstrators at the site last week,accosting someone identified to be a company representative.
But shareholders have been wary for months: The stock has shed nearly 85% of its value this year.
Earlier this month, Fitch and Moody’s Investors Services both downgraded Evergrande’s credit ratings, citing its liquidity issues. “We view a default of some kind as probable,” Fitch wrote in arecent note.
The situationalso appears to be spooking investors in China more broadly, at a time when they’re already reeling from Beijing’s crackdown on private sector companies, particularly in the tech sector. Stocks in Hong Kong, New York and other major markets have been swayed by fears of contagion from Evergrande and a slowdown in Chinese growth.
“In our opinion, how Evergrande credit stresses will be resolved will drive market sentiment,” Goldman Sachs analystswrote recently, referring to the credit market and the broader economy.They added that the Chinese bond market could be hit and a loss of confidence could “spill over to the broader property sector.”
WHAT COULD HAPPEN NEXT?
The Chinese government appears to be starting to intervene.
Over the past few days, the People’s Bank of China has injected some cash into the financial system, to help boost liquidity in the short term and settle nerves.
According to Bloomberg, the net injection for banks was 460 billion yuan ($71 billion) sometime this week, including 70 billion yuan ($10.8 billion) on Friday.
Authorities are clearly watching closely, while attempting to project calm.
Last week, Fu Linghui, a spokesperson for China’s National Bureau of Statistics, acknowledged the difficulties of “some large real estate companies,” according to state media.
Without naming Evergrande directly, Fu said that China’s real estate market had remained stable this year but the impact of recent events “on the development of the whole industry needs to be observed.”
Last week, Bloomberg alsocited anonymous sources as saying that regulators had enlisted international law firm King & Wood Mallesons, among other advisers, to examine the conglomerate’s finances. King & Wood Mallesons declined to comment.
According to the report, officials in Evergrande’s home province of Guangdong have already rejected a bailout request from its founder. Guangdong authorities and Evergrande did not respond to a request for comment.
Beijing has few good choices. It will want to protect the thousands of Chinese people who have bought unfinished apartments, as well as construction workers, suppliers and small investors.
Authorities will also likely aim to limit the risk of other real estate firms going under. But at the same time, they have long been trying to rein in excessive borrowing by developers — and won’t want to dilute that message.
Even with cash infusions, some suggest it may already be too late to save the company.
Evergrande’s financial problems have been widely dubbed by Chinese media as “a huge black hole,” implying that no amount of money can resolve the issue.
“China has really been trying to clean up its bad corporate debt for years. And although they made some progress before the pandemic, the task often seems interminable, and that’s what you’re certainly seeing here,” said Bekink.
“The impacts from a large default by Evergrande would be remarkable.”
— Kristie Lu Stout, Julia Horowitz, Laura He and CNN’s Beijing bureau contributed to this report.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
