Evergrande Vows to Resume Projects To Allay Boycott Concerns

(Bloomberg) -- China Evergrande Group pledged to resume its remaining stalled projects by the end of the month, as the debt-laden developer tries to allay concerns that prompted some homebuyers to refuse to pay mortgages for unfinished apartments. 

The company will restart construction on 38 developments by Sept. 30, it said in a statement late Monday, citing Chairman Hui Ka Yan’s weekly staff meeting. It has already resumed building on 668 of the total 706 projects, it said. 

Cash-strapped Chinese developers are facing pressure to complete presold homes after angry buyers nationwide stopped making loan payments. The mortgage boycotts could pose a threat to social stability ahead of a Communist Party congress next month, at which President Xi Jinping is expected to seek a third term. 

Evergrande is at the center of a credit crunch that has rippled through China’s property sector and curtailed growth in the world’s second-largest economy. Among its 668 projects that have resumed work, 606 have reached normal construction level, while 62 are in the process of returning to normal and will do so this month, Hui said at the meeting.

It’s been difficult to assess the scale of the mortgage boycotts since the government in July began censoring crowd-sourced documents circulated online. The trend has raised concern that the property crisis could spread to the financial system. Banks face mortgage losses of $350 billion in a worst-case scenario, S&P Global Ratings has estimated, although lenders posted much smaller overdue loans in the most recent earnings season. 

Chinese authorities are taking steps to ensure real estate companies finish apartments. In Zhengzhou city in Henan province, all stalled developments must resume by Oct. 6, the Communist Party-run Dahe News reported last week. 

The local government is urging builders to raise funds by selling undeveloped land and other assets, according to the report. Financing platforms set up by the local authorities will take over projects of developers who have liquidity difficulties.

The central government has also been taking steps to address the issue. Authorities will offer 200 billion yuan ($29 billion) in special loans to ensure stalled housing projects are delivered to buyers, people familiar with the matter said last month. 

In addition, policy makers are making it easier for some developers to raise funds on the local bond market. Several private real estate companies have issued or planned to issue new domestic bonds with state-owned China Bond Insurance Co. providing full guarantees. 

Developers like Country Garden Real Estate Group Co., which plans to sell as much as 1.5 billion yuan of onshore bonds, listed funding of property projects among their use of proceeds. Last week, Seazen Holdings Co. sold 1 billion yuan of three-year notes at a 3.28% yield. The bond, which is guaranteed by China Bond Insurance, was 2.8 times oversubscribed.

Yet Evergrande, which defaulted on its offshore debt in December, hasn’t been able to tap the domestic bond guarantee program and its statement didn’t say how it was funding the revived construction work. 

The company is actively applying for special purpose loans and trying to receive support fund money for distressed developers, 21st Century Business Herald reported last week, citing an interview with Chief Executive Officer Shawn Siu. It is working with state-backed construction companies in Chongqing and Hefei. 

Evergrande is working on an offshore debt restructuring plan, which it aims to announce within this year. It failed to deliver a preliminary plan in July as previously promised. 

(Updates with local bond issuance in ninth and 10th paragraphs)

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