ECONOMY

Evergrande’s legal woes pile up as financial stress grows

Evergrande Real Estate Group Ltd updates

Evergrande is on course to face a record number of legal challenges in Chinese courts this year as disputes with contractors pile pressure on the under-stress developer’s attempts to reduce its more than $100bn in debts.

Figures from Tianyancha, a data provider, showed that Evergrande has been involved in 427 legal cases this year, compared with 436 over the whole of 2020. In the past week, 18 cases have arisen — more than the developer’s total in 2014.

Legal cases involving the developer, which have increased significantly over the past few years, have been thrust into the spotlight in recent weeks as fears mounted over Evergrande’s financial health.

Shares in the group, whose chair Hui Ka Yan was once China’s richest man, have plunged 64 per cent this year as Beijing has tightened restrictions on leverage in the property market. Its dollar bonds maturing in 2022 were trading at 56 cents on the dollar, up from a nadir of 53 earlier this month.

Among those to file legal challenges was China’s Huaibei Mining Group, which said in late July that it was suing Evergrande in Anhui province over claims the developer owed Rmb401m ($61.9m) to one of its subsidiaries. Huaibei has asked the court that several construction contracts be terminated. 

Advertising company Leo Group this month said it was applying to a Shenzhen court to freeze Evergrande assets. Leo Group claimed the developer owed Rmb132m in advertising fees to one of its subsidiaries. Separately, a court in Jiangsu province in July froze Rmb132m of deposits at the request of Guangfa Bank related to a dispute over early repayment terms on a loan.

The number of legal cases involving Evergrande dwarfed those of other big developers. Country Garden, an industry peer, has been involved in 39 cases in 2021, according to Tianyancha data.

Many of Evergrande’s legal cases have been related to contractor disputes. The developer relies on commercial bills that it issues to companies it works with in advance of an eventual cash payment.

S&P Global Ratings downgraded Evergrande this month to triple C, deeper into speculative grade territory, as it noted a recent rise in contractor disputes. The rating agency estimated that the company has Rmb240bn of commercial bills and trade payables coming due over the next 12 months, of which Rmb100bn was due this year. 

“Based on market information, Evergrande might be persuading its suppliers and contractors to accept physical properties . . . as payments for services and goods,” S&P said. It added that it was a “possible approach” for preserving cash for loan repayments, but that would still reflect a “deterioration” in its liquidity position.

LETs, an architecture group based in the southern Chinese city of Xiamen, said last month that on June 9 it had stopped accepting commercial bills from Evergrande. As of its announcement, LETs said it held Rmb33m of overdue and unpaid Evergrande bills.

According to Chinese publication Caixin, civil lawsuits against Evergrande will be centralised at the Intermediate People’s Court of Guangzhou, the city where the company is headquartered. One expert working in the restructuring sector in China said this practice was becoming “increasingly common” and could give the company time to address its issues.

Evergrande had Rmb674bn of debt as of March and has pledged to reduce that figure Rmb350bn by June 2023. The company has pursued asset sales in a bid to raise cash.

Hui on Tuesday stepped down as chair of Hengda, the company’s mainland Chinese subsidiary, though he remains chair of the overall group.

Evergrande did not respond to a request for comment.

Additional reporting by Wang Xueqiao in Shanghai and Sherry Fei Ju in Beijing

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