The Chinese group Evergrande, one of the largest real estate developers in the country, with subsidiaries in sectors such as automotive and finance, has recognized the risk of default due to difficulties in obtaining the necessary liquidity due to the suspension of work in several of the projects developed by the company.

“The group has risks of non-payment of loans and litigation outside its normal course of business,” the company has warned in a statement, where it has indicated that it will continue to explore the sale of certain stakes in China Evergrande New Energy Vehicle Group and Evergrande Property Services .

At the same time, Evergrande will take measures to mitigate the liquidity problems it currently faces, including the project development schedule, strictly controlling costs, driving sales and collection of payments, as well as trying to renew and extend the loans along with the introduction of new investors to increase equity capital with the aim of improving liquidity , alleviating financial pressure and reducing debt.

If the above measures are not implemented, the company has warned that its liquidity problems “may deteriorate”, which could result in loan defaults and litigation that may have a material adverse effect on the group.

Group profit falls
Evergrande Group has seen its net profit fall 28.9% in the first six months of the year, to 10,499 million yuan (1,375 million euros), while the company’s turnover has decreased by 16.5% compared to the first half of 2020, up to 222,690 million yuan (29,166 million euros).

On the other hand, the Chinese firm has reported that in the first semester its liabilities amounted to 1,966 trillion yuan (257,490 million euros), with a debt of 571,775 million yuan (74,886 million euros), including 240,049 million yuan (31,439 million euros), 42% of the total, in debt with short-term maturity.

On its side, the company had liquidity or equivalents amounting to 86,772 million yuan (11,364 million euros), a figure 45% lower than that recorded a year earlier.

Delays in payment to suppliers
The firm has pointed to the adverse impact on its situation linked to the circulation in the market of “some negative reports”, which caused certain adverse effects on the group’s liquidity, which led to delays in payments to suppliers and in commissions of construction in the real estate development business, which led to the suspension of certain projects.

Currently, however, Evergrande has indicated that, with the coordination and support of the Government, it is negotiating with suppliers and contractors to get the construction works of these projects resumed.