Exclusive: China Evergrande’s lenders weigh up loan losses, rolling over credit
BEIJING/HONG KONG (Reuters) – One of China Evergrande Group’s main lenders has made provisions for losses on a portion of its loans to the embattled property developer, while some creditors are planning to give it more time to repay, four bank executives told Reuters.
This is the first report on the Chinese banks’ actions. It shows how the financial institutions in China’s second-largest country are anticipating the collapse of Evergrande.
China’s free-wheeling age of borrowing and building is epitomized by the developer, who has almost $305 billion in liability across bonds, loans, trust products, and money owed contractors and suppliers.
One of the executives stated that Agricultural Bank of China, the nation’s number three lender (in assets) has created loan loss provisions in order to reduce its Evergrande exposure.
China Minsheng Banking Corp Ltd (China CITIC Bank Corp Ltd), two major Evergrande lenders are willing to carry over their immediate debt obligations. These two independent sources have access to each other’s information.
Evergrande, AgBank and Minsheng did not reply to emailed questions for comment.
The four sources report that China banks have reduced their exposure to Evergrande over the last year. Many of their unpaid loans are secured or guaranteed by deposits.
Sources declined to identify individual clients as they were not permitted to.
Minsheng for instance has reduced Evergrande’s loan exposure to the tune of 30 billion from 40 million yuan in the past twelve months. One source also said Minsheng had stopped issuing new loans to Evergrande recently.
Evergrande had total bank and non-bank borrowings last year of 693.4 million yuan ($107.4billion). That includes loans made by trust businesses, analysts say. This is down from the 2019 total of 782.3 billion.
Even with the reduction in debt, Evergrande’s collapse would have a significant impact on the Chinese economy. The liabilities are equivalent to 2.2% of China’s GDP.
Analysts took the leak of a 2020 document that Evergrande claimed was fabricated, but it showed that liabilities extend to over 128 banks as well as more than 121 other non-banking entities.
According to a source, the People’s Bank of China was requesting that Evergrande’s main lenders review their loans and make financial assessments on a monthly basis.
Reuters reached out to the PBOC and China Banking and Insurance Regulatory Commission for clarification.
Evergrande is due to pay $83.5 million of interest on Sept. 23 for its offshore March 2022 bond. The March 2024 note payments will be paid in $47.5 million.
Evergrande failing to pay interest within the due time will result in bonds going into default.
A source from one of Evergrande’s main trust creditors said that regulators had not indicated to Chinese lenders about a potential bailout.
Evergrande was warned Friday by The Global Times editor-in Chief, a tabloid supported by China Communist Party. He said that Evergrande should not rely on any government bailout because it assumes it’s “too big for failure”.
Chinese regulators had in the past restricted domestic banks’ excessive lending to property firms.
Two banking sources said that it is possible for the government to step in and manage Evergrande’s collapse.
One source said that regulators had done a risk assessment of financial institutions prior to allowing it to happen.
($1 = 6.4550 renminbi)