Metallurgy / Chemicals / Rubber & Plastics

According to the Hong Kong Economic Daily News, Evergrande notified the two banks to suspend the payment of loan interest due on September 21. The company may also suspend all payments for its wealth management products from September 8. Since the beginning of this month, Evergrande has also postponed the payment of trust funds to a number of companies including CITIC Trust, Everbright Xinglong Trust and a Hangzhou trust company. As of the end of June, Evergrande announced cash and cash equivalents of 86.7 billion yuan (US$13.4 billion), while total borrowings were 331.7 billion yuan (US$51.3 billion).

To make matters worse, Evergrande has recently experienced downgrades by multiple rating agencies. Fitch Ratings downgraded the long-term foreign currency issuer default rating (IDR) of China Evergrande and its subsidiaries Evergrande Real Estate Group Co., Ltd. and Tianji Holdings from "CCC+" to "CC"; Moody's downgraded Evergrande's credit rating Downgraded three levels to Ca; Goldman Sachs lowered China Evergrande's rating from "Neutral" to "Sell".

Selling assets frequently, "not bad money" becomes "very bad money"

In order to save itself as soon as possible, Evergrande Group frequently dumped its assets, and assets such as Evergrande Property, Evergrande Bingquan, Evergrande Auto were "put on the shelves". Then, the central bank's website announced that the responsible comrades of the relevant departments of the People's Bank of China and the China Banking and Insurance Regulatory Commission interviewed senior executives of Evergrande Group. And Evergrande also immediately responded with "things brooks no delay", with the utmost determination and strength to maintain the company's business stability, resolve debt risks, and maintain the real estate market and financial stability.

How big is Evergrande’s debt? Last year, Evergrande’s total liabilities were 1.95 trillion yuan, of which interest-bearing liabilities were more than 800 billion yuan. As of the end of the period, Evergrande’s net debt ratio was 159.2%, the debt-to-asset ratio after excluding advance receipts was 83.4%, and the cash short-term debt ratio was 0.47 times. The “three red lines” were all stepped on. According to the latest financial report, Evergrande’s real estate and automobile businesses in the first half of the year totaled a loss of more than 8 billion yuan. Evergrande, which never seems to be short of money, is gradually detonating its debt crisis.

Because of its strong financing capabilities, Evergrande’s "money burning model" can continue as long as funds can be obtained from banks or other channels. But the good times are not long. In recent years, the domestic regulatory trend has undergone a major shift. In order to prevent real estate risks from spreading to the financial system, relevant departments have begun to control the financing channels of real estate companies. Evergrande’s financing model was cut off, which detonated the debt crisis. .

According to the requirements, if real estate companies touch all three red lines, they can no longer add interest-bearing debt. Of the 12 key real estate companies interviewed at that time, three of them stepped on all three red lines, among them Evergrande. This means that Evergrande can no longer balance cash flow by "borrowing the new and repaying the old", and in accordance with regulatory requirements, it must complete its debt reduction target by June 30, 2023. The most direct impact on Evergrande is that a large number of maturing debts are facing pressure to repay.

In the first half of this year, Evergrande’s commercial drafts began to fail to be paid in time. Some companies began to suspend the acceptance of Evergrande’s commercial drafts, and some business partners were owed project payments or advertising fees. The request of the Yixing branch of China Guangfa Bank to freeze Evergrande’s assets of 130 million yuan has also completely triggered Evergrande’s stock and debt double killing.

Although Evergrande stated in the middle of the year that its interest-bearing liabilities fell from last year’s highest of more than 870 billion yuan to about 570 billion yuan, and the net debt ratio fell below 100%, realizing a “red line” to turn green, but Evergrande’s deleveraging The road is still not easy. Since the second half of this year, some companies have begun to file for the freezing of Evergrande’s assets with the court because of their default payments. If similar behavior spreads on a large scale, more Evergrande’s creditors will apply for freezing for the purpose of asset preservation. Assets, Evergrande will encounter the most terrible run crisis.

More than 1,000 developers went bankrupt, and the price drop in the cold winter became a trend

In fact, the ever-increasing crisis of Evergrande is only a microcosm of the real estate industry. The current real estate industry has ushered in a cold winter. With the domestic regulation of the property market, the housing market has gradually cooled down, and developers have set off a wave of bankruptcy. So far this year, at least 274 real estate companies have issued bankruptcy documents, and an average of one goes bankrupt every day. In less than three years from 2019 to the present, there have been more than 1,000 bankrupt developers across the country!

At present, some non-hot-spot third- and fourth-tier cities have continued to sluggish transactions under the emphasis on control, and real estate companies are under the constraints of the "three red lines" and other policies, and funding pressures have gradually emerged. Many netizens reported that in order to withdraw funds, real estate companies have maliciously cut prices in many cities by means of price-for-volume. Some owners have lost 300,000 yuan a year before handing over their houses.

The property market ushered in a major reshuffle, and the coating industry suffered a "crushing disaster"

At present, most home buyers maintain a wait-and-see attitude. The houses in the hands of real estate companies cannot be exchanged for funds to repay debts, nor can they easily reduce prices for promotion. The capital chain will naturally be tested. Economists have predicted that 80% of developers will go bankrupt in the future. According to the current market conditions, developers will face tremendous pressure to survive for a long time to come, and they may go bankrupt at any time. This also means that more and more real estate companies will be eliminated one after another.

The decline of the real estate industry has also affected the coatings industry, which is an important raw material. The winter is approaching, and the entire coating industry has been swept by chills. Previously, the Paint Purchasing Network had analyzed and reported that if Evergrande falls, then companies such as Carpoli, Nippon, and Sankeshu as its suppliers will be affected. The first impact on the coatings industry is the reduction of orders, the shrinking demand side, and the increased risk of recovery of payment for goods and engineering.

With the recession of Evergrande, the winter of the real estate industry is approaching, and more real estate companies will close down. What’s more serious is that most of the leading companies in the coatings industry that connect and supply real estate companies are leading the development of the industry. From their trends, you can see the coating industry. The height of the industry will be affected, the capital chain and the stability of the industry chain will also be broken, and the coating industry may usher in a "crash".