Property developer China Evergrande Group is teetering on the brink of collapse, weighed down by a giant debt load and billions of dollars of real estate it can’t sell as quickly or as profitably as anticipated.
While trouble has been brewing for a year, it’s coming to a head now, as the conglomerate missed one loan payment in June and more are expected. The company’s offices were the site of angry protests this week, and things could get even uglier on Monday when the company is likely to miss another key interest payment to its increasingly concerned financiers.
Evergrande’s possible collapse is sparking fears that it could take other parts of China’s housing market down with it — and impact business interests outside China, too.
Here’s a brief explainer of what you need to know about the story.
What is Evergrande?
Founded in 1996 in the Chinese city of Shenzhen, across the border from Hong Kong, Evergrande is mostly a property developer, whose core business is buying up land and turning it into residential real estate. Company founder Hui Ka Yan is a former steel worker who rode China’s 21st century real estate boom to a fortune that was at one point last year worth $30 billion US, good enough for the title of third-richest man in China.
The company has built more than 1,300 housing developments in 280 cities in China, with plans for another 3,000 projects underway in various cities across the country.
But like any good conglomerate, it has expanded into all sort of other businesses, including bottled water and food, electric vehicles, theme parks, a Netflix-like streaming service with almost 40 million customers — and even a professional soccer team.
Why are they in trouble?
Debt — and lots of it. The company has almost two trillion yuan of debt on its books, the equivalent of more than $300 billion US. The company aggressively borrowed money to buy more land to develop, and sold apartments quickly at low margins to raise enough cash to start the cycle up again. Which works fine as a business model — until it doesn’t.
In late 2020, new rules brought more scrutiny to the company’s finances, which revealed higher-than-expected debt loads. That, coupled with mounting construction delays spooked buyers, setting up a vicious cycle. The company began its descent to pariah status as lenders and buyers lost their nerve in lockstep with each other.
Every attempt by the company since then to distract from its problems only served to draw more attention to them. Lenders got more and more unsettled. Existing owners got upset. New sales slowed, which created a feedback loop that got lenders even more jittery.
WATCH | Investors angrily protest at Evergrande offices:
Chinese real estate jitters
19 hours ago
Buyers at Chinese property developer Evergrande are demanding answers from the company management, as fears mount that the company may collapse under its debt load. (David Kirton/Reuters) 0:34
In June, the company admitted it missed payment on a loan. The next month, a Chinese court froze a $20 million bank deposit at the request of one its lenders. At least one creditor, a paint supplier, is reportedly being paid in apartments that won’t be ready until 2024.
According to data compiled by Bloomberg, on the 19th of July, presales at two projects in Hunan were halted. Three days later, Hong Kong banks stopped offering mortgages on any incomplete projects by the company in the city. On August 9, two more projects in Kunming stopped construction due to missed payments, followed by similar halts at projects in Nanjing and Chengdu. Things have snowballed ever since. The company’s stock price has cratered by 90 per cent in the past year, and most of their bonds are in junk status.
The company is behind on its obligations to more than 70,000 investors. More than one million buyers of unfinished projects are in limbo. And the pace of problems is picking up. “Sales could slump further as the developer may struggle to restore potential homebuyers’ confidence,” said Lisa Zhou, an analyst with Bloomberg Intelligence.
Monday figures to be an inflection point for the company as Evergrande is supposed to make an $80 million interest payment on one of its many loans, and there’s next to no chance it will pay that, which could start the clock ticking toward some undesirable outcomes.
So what could happen?
A number of bleak B words are on the table — bankruptcy, breakup, buyout, or bailout — and none of them are ideal.
The first option would be the most painful.
“If, as expected, Evergrande is defaulting on its debt and goes through a restructuring, I don’t see why it would be contained,” Michel Lowy of distressed debt investment firm SC Lowy, told Reuters.
The Emerald Bay residential project in Hong Kong has been beset by delays, and spooked buyers. ( Lam Yik/Bloomberg)
But because of the Chinese government’s long-standing desire for stability, that’s also the least likely outcome. The company owes money to 128 different banks, and was behind almost one out of every 20 property sales in China in the past five years. Evergrande permanently employs almost 200,000 people, but hires almost four million people a year to work on various projects.
With a reach that wide, analysts who cover the sector are confident that Beijing won’t let the company simply collapse. “Evergrande’s escalating crisis may prompt government action to prevent social instability,” Zhou said.
More likely is some version of the next two options, a breakup or buyout, where the company sells assets to raise cash and help is brought in to run things. “State-owned enterprises or other developers may also take over Evergrande’s projects, after Chinese officials sent accounting and legal experts to examine the company’s finances,” Zhou said.
A man walks past a banner promoting the Emerald Bay residential project in Hong Kong, amid news that the developer is teetering on the brink of collapse. (Lam Yik/Bloomberg)
Economist Art Woo with Bank of Montreal said in a note on Friday that he also doubts a bailout is coming. “As for who could bear the losses, that’s frankly tricky to predict, but we think it’s reasonable to believe that the authorities are unlikely to bail out equity holders or creditors in an effort to prevent moral hazard from increasing and improve financial discipline,” he said.
More likely is some sort of organized wind down, to keep damage to a minimum. “We do not believe the government has an incentive to bail out Evergrande (which is a private-owned enterprise),” Nomura analyst Iris Chen said in a note to clients.
“But they will also not actively push Evergrande down and will supervise a more orderly default, if any, in our view.”
WATCH | CBC reported on China’s ‘ghost cities’ of empty towers nearly a decade ago:
China’s ghost cities
9 years ago
CBC’s Adrienne Arsenault explains how empty skyscrapers are casting shadows on the Canadian economy. 2:31
Is there an impact outside China?
Not much, directly, although the company does have assets in Europe and North America — including the ritzy Château Montebello resort in Quebec — but the company’s woes are nonetheless a cautionary tale for people everywhere.
China has been in a housing boom for more than two decades now, as more and more people put money into residential real estate — almost regardless of the price and demand for the underlying asset.
Video went viral on social media this month of a 15-tower condo development in Kunming being dynamited to the ground because it was a ghost city with no actual residents, eight years after being built.
While that wasn’t an Evergrande project, the worry is that there are many others out there like it.
Re-upping the stunning demolition videos showcasing housing oversupply in China: 15 skyscrapers in China that were part of the Liyang Star City Phase II Project were just demolished after sitting unfinished for eight years due to absent market demand. <a href=”https://t.co/UByqjk8QXX”>pic.twitter.com/UByqjk8QXX</a>
The 2009 financial crisis was sparked by the failure of two investment banks, Bear Stearns and then Lehman Brothers, which exposed just how much bad debt there was in the system, and caused a chain reaction of worry down the line
That may be far fetched for the economy as a whole this time around, but it’s certainly on the table for China’s housing market at least.
“Lehman (was) very different as it went across the financial system, freezing activity,” said Patrick Perret-Green, an independent London-based analyst.
“Millions of contracts with multiple counterparties, everyone was trying to work out their exposure,” he said. “With Evergrande it depresses the entire real estate sector.”
“There are other developers that are suffering from the same problem of no access to liquidity and have extended themselves too much,” Lowy said.
Simon MacAdam, an economist with Capital Economics, says the Lehman parables are unwarranted.
“The China’s Lehman moment narrative is wide of the mark,” he said. “Even if it were the first of many property developers to go bust in China, we suspect it would take a policy misstep for this to cause a sharp slowdown in its economy.”
Regardless, the Evergrande saga is a cautionary tale about the down side of unrestrained real estate speculation anywhere.
As Woo put it: “A default or bankruptcy does not pose a Lehman-type threat … but it’s still bad news for the economy.”
TORONTO – Canada Goose Holdings Inc. says it has signed a deal that will result in the creation of its first eyewear collection.
The deal announced on Thursday by the Toronto-based luxury apparel company comes in the form of an exclusive, long-term global licensing agreement with Marchon Eyewear Inc.
The terms and value of the agreement were not disclosed, but Marchon produces eyewear for brands including Lacoste, Nike, Calvin Klein, Ferragamo, Longchamp and Zeiss.
Marchon plans to roll out both sunglasses and optical wear under the Canada Goose name next spring, starting in North America.
Canada Goose says the eyewear will be sold through optical retailers, department stores, Canada Goose shops and its website.
Canada Goose CEO Dani Reiss told The Canadian Press in August that he envisioned his company eventually expanding into eyewear and luggage.
This report by The Canadian Press was first published Sept. 19, 2024.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – TD Bank Group, which is mired in a money laundering scandal in the U.S., says chief executive Bharat Masrani will retire next year.
Masrani, who will retire officially on April 10, 2025, says the bank’s, “anti-money laundering challenges,” took place on his watch and he takes full responsibility.
The bank named Raymond Chun, TD’s group head, Canadian personal banking, as his successor.
As part of a transition plan, Chun will become chief operating officer on Nov. 1 before taking over the top job when Masrani steps down at the bank’s annual meeting next year.
TD also announced that Riaz Ahmed, group head, wholesale banking and president and CEO of TD Securities, will retire at the end of January 2025.
TD has taken billions in charges related to ongoing U.S. investigations into the failure of its anti-money laundering program.
This report by The Canadian Press was first published Sept. 19, 2024.
