Evergrande's Massive Losses and Looming Crisis Shake China's Property Sector

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Evergrande, the Chinese property giant, has suffered staggering losses over the past two years, amounting to over $113 billion. In addition, the company now faces liabilities of nearly $340 billion. These dire financial figures were revealed as Evergrande finally released its long-delayed results.

In a filing with the stock exchange, Evergrande acknowledged that these losses raised concerns about its ability to continue as a viable entity, citing "material uncertainties." Once a leading force in China's real estate industry, Evergrande's colossal debt crisis in 2021 sent shockwaves throughout the country and even had global repercussions.

Trading of Evergrande's shares on the Hong Kong stock exchange has been halted since March 2022. At that time, the company had announced that it would be unable to meet the deadline for publishing its audited results for 2021, attributing the delay to additional audit procedures and the lingering impact of the Covid-19 pandemic.

According to the recently disclosed filings with the Hong Kong stock exchange, Evergrande reported a net loss of 686.22 billion yuan ($95.7 billion) in 2021 and a further loss of 125.81 billion yuan in 2022. The revelation of these figures, albeit delayed, could pave the way for the resumption of trading.

The group's total liabilities ballooned to 1.97 trillion yuan in 2021, and by December 2022, unaudited results showed an increase to 2.44 trillion yuan. These numbers indicate that Evergrande continues to grapple with debt repayment, despite selling off various subsidiaries.

In an effort to address its dire situation, Evergrande proposed a restructuring plan this year. The plan offers creditors the option to exchange their debt for new notes issued by the company, as well as equities in two subsidiaries: Evergrande Property Services Group and Evergrande New Energy Vehicle Group. The company has set an anticipated effective date for the restructuring of October 1, 2023, with a longstop date of December 15, 2023.

The distress faced by Evergrande represents a larger crisis within China's property sector, a critical contributor to the nation's gross domestic product, accounting for approximately a quarter of it. Major developers, including Evergrande, have struggled to complete housing projects, leading to protests and mortgage boycotts from frustrated homebuyers.

Since the government implemented stricter lending regulations in 2020, smaller firms have faced loan defaults and difficulties in raising funds. Recognizing the gravity of the situation, China's banking regulator and central bank introduced new measures in November to foster the "stable and healthy development" of the real estate industry. These measures encompass credit support for indebted developers, financial assistance to ensure project completion, and deferred-payment loan options for homebuyers.

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