Chinese Real Estate Industry Faces Domino Bankruptcy Crisis

Yangguang 100, 200 Billion Won Default
Second Largest Company Evergrande, Default Countdown

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] Chinese major real estate developer Sunshine 100 (Yangguang 100) declared default, stating it cannot repay bonds and interest amounting to $179 million (approximately 212.2 billion KRW). Second-largest real estate company Evergrande is also on the brink of default, putting the Chinese real estate industry at risk of a chain bankruptcy crisis.

According to Bloomberg on the 6th, Yangguang 100 announced the day before, "Negative impacts from the macroeconomic environment and various factors including the real estate sector have caused liquidity problems." Yangguang 100 had warned since August that it would be unable to repay principal and interest on bonds maturing this year.

Bloomberg stated, "Amid concerns that Evergrande Group may face default, this default has further highlighted the liquidity crisis among real estate developers."

Evergrande will officially default if it fails to pay $82.5 million (approximately 97.6 billion KRW) in dollar bond interest by today. It missed two interest payments on the 6th of last month, and the 30-day grace period ends today.

In a disclosure filed with the Hong Kong Stock Exchange on the 3rd, Evergrande revealed it received a demand from bondholders to fulfill debt guarantee obligations of $260 million (approximately 307.5 billion KRW), but stated repayment may be difficult. This effectively formalized the default crisis, citing a lack of funds to repay debts.

If Evergrande fails to repay its debts, it could trigger a large-scale chain default, prompting the Chinese government to intervene directly to resolve the situation. On the night of the 3rd, the Guangdong provincial government urgently summoned Evergrande Chairman Xu Jiayin and dispatched a government task force to Evergrande to assist with risk management and internal controls to support company operations.

Bloomberg reported, "The question in global markets is whether Chinese authorities can restructure Evergrande’s debt without overturning the real estate sector, which accounts for about a quarter of China’s domestic economy."