One of the world's biggest debt restructuring plans has been thrown into uncertainty raising fears of a major Chinese property crisis.
The fear of the possible defaulting of Chinese real estate giant Evergrande is back.
The embattled developer has seen its share prices fall spectacularly for the second day in a row after it defaulted on its 4 billion yuan (€516 million) debt repayment and delayed restructuring meetings.
The property giant has an ongoing debt restructuring plan to pay back billions of dollars to creditors across the globe.
Evergrande's main domestic unit, Hengda Real Estate Group, said in a Shenzhen stock exchange filing late on Monday it had failed to pay the principal and interest for a 4 billion yuan bond that was due by 25 September.
The news comes after the company said on the weekend that it was unable to issue new debt, an important step in a closely watched major debt restructuring plan, due to an ongoing investigation into Hengda, sending Evergrande's share price plunging 22% on Monday.
Hengda said it will actively negotiate with bondholders in a bid to reach a solution as soon as possible while working to resolve the debt risks and to safeguard creditors' rights and interests.
Embroiled in investigations
Last month, Hengda said it was being probed by the securities regulator, while police in southern China said they have detained some staff at China Evergrande Group’s wealth management unit.
Other reports from China claim that "multiple current and former executives of China Evergrande Group and its subsidiaries" have become embroiled in a government investigation.
On Friday, China’s national financial regulator announced it had approved the takeover of the group’s life insurance arm by a new state-owned entity.
Billions of dollars of debt is at stake
The world's most indebted developer made headlines in 2021 as it had defaulted on its debts, prompting fears of shockwaves rattling the global financial system.
The company reported a combined loss of $81 billion (€76 million) for 2021 and 2022 in July 2023. Its total liabilities amounted to $335 billion last year.
Since then, Evergrande has lurched from one crisis to another while seeking creditors' approval for its proposals to restructure offshore debt worth $31.7 billion, which includes bonds, collateral, and repurchase obligations.
Ripples on the Chinese property market
As one of the world's biggest debt restructurings, the Evergrande affair is being closely monitored by the markets as anxiety grows over China's worsening property crisis.
The world's second-largest economy is showing signs of weakening, and the property sector is one of its solid pillars, accounting for roughly a quarter of the Chinese economy.
Evergrande is not the only company in a dire situation on the Chinese property market.
The country's largest developer, Country Garden, lost $7.1 billion in the first six months of 2023. Investors are concerned that the company may also face potential debt default.
A default on paying the debts of a major Chinese property developer could mean the immediate halt of their investments. Evergrande is present in 200 cities and provides jobs to 100,000 people. Also, many financial institutions are exposed to the developer through direct loans and indirect holdings.
A potential crisis could have a further serious impact on already-lagging domestic consumption as 70% of the general population’s assets are invested in real estate in the Asian country.