Despite its recent rapid diversification, Evergrande has struggled to meet its interest payments and apartment deliveries for several weeks now. The Chinese government has still not said whether it will rescue the company from bankruptcy in spite of the storm on the financial markets in September.
“Overall, the risk of contagion to the financial system is manageable,” Zou Lan, a senior official of the Central Bank, told local media.
The authorities “urge Evergrande to make more efforts in disposing of assets and speeding up the recovery of construction,” he said at a press conference.
Zou added that the company was cleaning up the trades and resolving risks in accordance with legal and market regulations.
Several subcontractors and suppliers have been complaining about their unpaid invoices recently. Many of these cases have been taken to court, and construction sites have been closed.
The Chinese real estate sector has long been one of the engines of the economy. Developers undertook the construction of millions of homes. This frenzy is largely driven by the underlying need to own property for social advancement, a step almost indispensable to advancement.
However, regulators have imposed “red lines” on the Chinese real estate sector, or prudential ratios intended to reduce developers’ borrowing.
Evergrande acknowledged last month that it might not be able to meet all its obligations. However, the group denied that it was on the verge of bankruptcy. Last month, dozens of destitute owners and unpaid suppliers demonstrated outside Evergrande’s headquarters in Shenzhen.
As of this month, Evergrande was unable to repay a third loan of $148 million. For each loan, the group has a grace period of 30 days. The first payment is due on October 23.
In any case, it will still have to repay its creditors a total of $32.5 million before the end of October.