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China Evergrande’s lenders weigh up loan losses, rolling over credit


© Reuters. Security personnel stand guard outside Evergrande’s headquarters, in Shenzhen, Guangdong province, China September 17, 2021. REUTERS/David Kirton

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.

These measures by Chinese banks, which were first reported, demonstrate how financial institutions of the second largest economy in the world are preparing for Evergrande’s collapse.

China’s freewheeling age of borrowing and building is epitomized by the developer, who has almost $305 billion in liability across bonds, loans, trust products and money due to contractors, suppliers and others.

One of the officials said that Agricultural Bank of China (OTC) (AgBank), China’s third-largest lender in terms of assets, had made loan loss provisions to cover some of 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), which includes loans made by trust businesses rather than banks. This is down from the 2018 total of 782.3billion yuan.

A collapse of Evergrande, no matter how managed, could still have devastating effects on China’s economy. Its liabilities would be 2% of its GDP.

Analysts took the leak of a 2020 document that Evergrande claimed was a fraud, but it showed liability 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 undergo a review of 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.

ORDERLY COLLAPSE

Evergrande is due to pay $83.5 million of interest on Sept. 23 for its offshore March 2022 bond. Another $47.5million interest payment is due Sept. 29 on March 2024 notes.

Evergrande failing to pay interest within the due time will result in bonds going into default.

According to a source close to one of the major trust creditors, regulators haven’t given Chinese lenders any hint of Evergrande being bailed out.

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 large to fail”.

Chinese regulators in the past have reined into the unbridled lending of property companies by domestic banks. They also stressed the necessity to reduce property speculation and the importance deleveraging the sector.

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)



Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.