Original title: China Guangfa Bank applied for preservation of 130 million Evergrande stock debts before the lawsuit “fall” Source: Securities Times
Securities Times reporter Pan Yurong and Wu Leding
A loan of 130 million yuan was preserved, which caused the “Hengda Group” to suffer a double kill of equity and debt.
Yesterday, a ruling from the People’s Court was circulating in the market. The ruling shows that China Guangfa Bank recently requested to freeze the bank deposits of the respondent Yixing Hengyu Real Estate Co., Ltd. (hereinafter referred to as “Hengyu Real Estate”) and Evergrande Real Estate Group Co., Ltd. (hereinafter referred to as “Hengda Real Estate”) of 132 million yuan . The market quickly reacted to the news, and the “Hengda Group” collectively fell sharply.
As of yesterday’s close, China Evergrande has fallen by more than 16%, Evergrande Motor has fallen by nearly 20%, Hengteng Network has fallen by nearly 12%, Evergrande Property has fallen by 13.38%, and the cumulative market value of Evergrande has exceeded 73 billion Hong Kong dollars. In addition, the “Hengda Series” bonds also “exhausted”. Among them, “15 Evergrande 03” fell nearly 13%, and “19 Evergrande 01” and “19 Evergrande 02” both fell by more than 11%.
In the aforementioned ruling, the Yixing branch of China Guangfa Bank stated that “the situation is urgent, and your rights and interests will be harmed if you do not apply for preservation.”
The attitude of the bank is very important for the real estate company’s capital chain. On the afternoon of July 19, this court’s civil ruling circulated on the Internet also brought China Guangfa Bank and Evergrande Group to the forefront.
This civil ruling was issued by the Intermediate People’s Court of Wuxi City, Jiangsu Province on July 7. The document stated that China Guangfa Bank Yixing Sub-branch applied to the court for pre-litigation property preservation on the grounds that “the situation is urgent and failure to apply for preservation immediately will cause irreparable damage to the lawful rights and interests”, requesting the freezing of Hengyu Real Estate and Evergrande Real Estate. Bank deposits of RMB 132.01 million or other properties of equivalent value were sealed up or seized.
The Intermediate People’s Court of Wuxi City, Jiangsu Province held that the application complied with the law. In accordance with Article 101, Article 102 and Paragraph 1 of Article 103 of the “Civil Procedure Law of the People’s Republic of China”, it was ruled to freeze the bank deposits of the respondent Hengyu Real Estate and Evergrande Real Estate. 132.01 million yuan or other properties of equivalent value will be sealed up or seized.
The ruling will be executed immediately after it is served. According to regulations, if the applicant fails to file a lawsuit or apply for arbitration within 30 days after the people’s court takes the preservation measures, the court will release the preservation in accordance with the law. This means that if the problem is not resolved, China Guangfa Bank may file a lawsuit against Evergrande Group and its subsidiaries within 30 days.
Accordingly, a reporter from the Securities Times contacted China Guangfa Bank as soon as possible, but as of press time, no response has been received.
Allegations of widespread abuse of pre-litigation preservation
The above-mentioned judgment document was circulated on July 19. In response, Evergrande Group replied to a reporter from the Securities Times that the project company Yixing Hengyu Real Estate Co., Ltd. and China Guangfa Bank Yixing Branch, a project company of the company’s Jiangsu Provincial Branch, provided a project loan of 132 million yuan with a maturity date of March 27, 2022.
In other words, the loan is not yet due. Evergrande also stated in its response, “For the abuse of pre-litigation preservation by China Guangfa Bank Yixing Branch, our company will sue according to law.”
Can I apply for litigation preservation if the loan is not due? A lawyer told the Securities Times reporter that if certain conditions are met, the loan can also be applied for litigation preservation if the loan is not due. The main reason is that it can request a guarantee and exercise the right of early termination when there is a risk of failure to repay the debt.
The market value of stock and debt double kills has evaporated
In fact, before that, Evergrande has frequently signaled to the market that there is no shortage of money—not only special dividends, but also early repayment of HK$13.6 billion in US dollar debt.
However, market funds still seem to have insufficient confidence in China Evergrande. On July 19, the news that China Guangfa Bank applied for the pre-litigation of Evergrande and Evergrande made the “Hengda Group” a collective drop. In the midday of the day, the decline of “Hengda Series” stocks continued to expand. As of the close, China Evergrande has fallen by more than 16%, Evergrande Motor has plunged nearly 20%, Hengteng Network has fallen nearly 12%, and Evergrande Property has fallen 13.38%. As a result, the total market value of China’s Evergrande dropped to 108.8 billion Hong Kong dollars. Compared with the previous trading day, the market value evaporated over 20.9 billion Hong Kong dollars; the market value of Evergrande Motors exceeded 37.1 billion Hong Kong dollars in a single day, and the total market value of “Hengda Series” has evaporated more than 73 billion Hong Kong dollars.
At the same time, the “Hengda Series” bonds also plummeted collectively. Among them, “15 Evergrande 03” fell nearly 13%, “19 Evergrande 01” and “19 Evergrande 02” both fell by more than 11%, and “20 Evergrande 01” and “20 Evergrande 02” fell by more than 8 respectively. %, 9.8%.
Judging from the disk situation, the news of the above ruling has obviously aggravated the nervousness of funds, and investors have dumped “Hengda” stocks and bonds. In the intraday, although Evergrande issued a timely statement, the trend of its stocks and bonds did not show a significant rebound.
Where is the depth of Evergrande’s debt?
Ever since 2021, Evergrande debt has been affecting the sentiment of market funds, so what is the current situation of Evergrande debt?
Last Friday (July 16), market funds’ worries about Evergrande’s liquidity have eased. On that day, China Evergrande’s share price rose sharply by more than 14%.
What eased market sentiment was a special dividend announcement. On July 15, China Evergrande announced that it would hold a board meeting on July 27 to discuss the special dividend plan.
The market’s interpretation of this is that Evergrande has taken the initiative to release a signal of “no shortage of money” to the outside world, which has also restored the market’s confidence in Evergrande to a certain extent.
In fact, before that, Evergrande had already released a signal of liquidity safety to the market. On June 24, China Evergrande announced that it had arranged for its own funds of HK$13.6 billion to repay US dollar debt in advance. At this point, Evergrande will have no domestic and foreign open market bonds due before March 2022.
Since March last year, Evergrande has returned a total of approximately US$10.6 billion in principal and interest of 7 overseas bonds (equivalent to over HK$82.3 billion). It is reported that the 10.6 billion US dollars of funds are not raised through bond issuance to repay the old, but Evergrande’s own funds.
Regarding its own sources of funds, China Evergrande said that since 2020, many of its subsidiaries have intensively introduced strategic investors to supplement the company with a large amount of cash. For example, Evergrande Motors, with a total market value of nearly HK$300 billion, is the most important listing platform for Evergrande Group Chairman Xu Jiayin. Since August last year, China Evergrande has raised three times through Evergrande Motors, with a fundraising scale of approximately 40.6 billion. Hong Kong dollar.
In addition to external financing and the introduction of strategic investment, vigorously promoting the collection of funds is also the key to Evergrande’s continuous recovery of liquidity and reduction of debt. As of the end of June, Evergrande achieved a total of 356.79 billion yuan in sales and 321.19 billion yuan in sales return this year, both hitting record highs.
Over the past year or so, the focus of Evergrande Group’s business strategy has been almost entirely on debt reduction. The company has “reduced debt” by vigorously promoting payment collection, selling equity and debt-to-equity swaps. According to data, China Evergrande will achieve sales of 723.25 billion yuan in 2020, achieving 111% of the sales target; sales return is 653.16 billion yuan, a year-on-year increase of 38.5%, and the annual return rate is 90.3%.
In March of this year, Xu Jiayin even gave out a debt reduction target plan for the next three years-on June 30, 2021, the net debt ratio will be reduced to below 100%, and the cash short-term debt ratio will reach more than 1 on December 31, 2021. On December 31, 2022, the asset-liability ratio will be reduced to below 70%, fully meeting the regulatory requirements, and achieving all the “three red lines” turning green.
On June 30, Evergrande Group revealed to the public that as of the end of June, Evergrande’s net debt ratio had fallen below 100%, successfully achieving a “red line” turning green. In addition, Evergrande’s current interest-bearing liabilities have also fallen to about 570 billion yuan, which is a sharp drop of about 300 billion yuan compared with the 870 billion yuan at its peak last year.
According to the regulations of the “three red lines” of supervision, if all three indicators fail to meet the standards, they are classified as “red files” and the scale of interest-bearing liabilities shall not be increased; if two indicators fail to meet the standards, they shall be classified as “orange files”, and the scale of interest-bearing liabilities shall increase annually. The annual growth rate of interest-bearing liabilities shall not exceed 10% if one fails to meet the standard, and the annual growth rate of interest-bearing liabilities shall not exceed 10%; all three indicators meet the standards and are classified as “green files”, and the annual growth rate of interest-bearing liabilities shall not be allowed. More than 15%.
It can be seen that the introduction of the “three red lines” regulatory new regulations has put forward more specific requirements on the financial indicators of real estate companies, and clearly restricts the disorderly growth of the debt scale of real estate companies. “Controlling debt and reducing leverage” has become the focus and development direction of many real estate companies.
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