A manufacturer works at an assembly line of Vingroup’s Vsmart phone in Hai Phong, Vietnam December 4, 2018. REUTERS/Kham/File Photo Acquire Licensing Rights
HANOI, Dec 8 (Reuters) – Chinese investments in Vietnam have boomed this year in contrast to a slowdown in U.S. spending and trade, official data show, as the world’s two largest economies vie for influence in the strategic Southeast Asian country.
The manufacturing hub stretching along the South China Sea is increasingly a key assembling link in global supply chains that often rely on Chinese components and U.S. consumers.
U.S. President Joe Biden achieved an upgrade of diplomatic relations with the former foe in a visit to Hanoi in September, after a year of intense diplomatic efforts to elevate the United States to the same tier as China in Vietnam’s ranking.
China’s President Xi Jinping will travel to Vietnam next week with the aim of further deepening ties. He may agree to declare that the two countries share a common destiny, diplomats said, which could be interpreted in Beijing as a formal upgrade of diplomatic relations.
It is unclear which symbolic upgrade carries more weight, but in economic terms China appears to have had the upper hand so far, partly as a consequence of U.S. trade policy. Tensions between Washington and Beijing and various U.S.-led sanctions on China in recent years have encouraged Chinese investment in Vietnam.
Registered investment from China and Hong Kong combined rose to $8.2 billion in the first 11 months of this year, according to Vietnam’s official statistics, twice as much as in the same period last year when China had pandemic restrictions, making them the biggest investors in Vietnam.
U.S. registered investment instead has fallen to $0.5 billion this year from $0.7 billion in 2022, making it the 10th largest investor after Pacific offshore centre Samoa and the Netherlands.
Bilateral trade also dropped, as U.S. consumers grappled with a cost-of-living crisis this year and no tariff cuts were agreed during Biden’s visit.
Exports from Vietnam to the United States plunged 15% to $79.25 billion in the first 10 months of the year, Vietnam data show, and U.S. imports fell as well.
In the same period Vietnam’s exports to China increased by 5% to nearly $50 billion, although imports fell as Vietnam largely buys from Beijing components that are assembled for export to Western countries.
Despite strong economic exchanges, relations with China are complicated by disputes over boundaries in the South China Sea. Anti-Chinese sentiment is also common among Vietnamese people, and it leads to frequent protests, including one in 2018 against the creation of special economic zones that could have benefitted Chinese companies.
DE-RISKING
The U.S. diplomatic upgrade came with the White House’s pledges of more investments and easier trade.
“Despite the fanfare during Biden’s visit we have not seen so far a lot materialise,” said Zachary Abuza, professor on Southeast Asian politics at the National War College in Washington DC, noting foreign businesses face significant challenges when investing in Vietnam.
Several Vietnam-based business consultants signalled an increase in U.S. investors’ interest and noted that investment decisions take time to be made.
The parallel boom in Chinese investment, which excluding Hong Kong has nearly doubled this year above pre-pandemic levels to $3.9 billion, is partly explained by companies’ de-risking strategies amid U.S.-China trade tensions, said Kyle Freeman, partner at business consultancy Dezan Shira.
China’s slowdown has also been a factor on investment decisions, said Chad Ovel, partner at Vietnam-focused private equity firm Mekong Capital. “(The) poor short to moderate-term macro outlook in China is motivating Chinese to find investment opportunities outside of their own country.”
Reporting by Francesco Guarascio; Additional reporting by Khanh Vu and Phuong Nguyen; Editing by Jacqueline Wong
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BERLIN, Dec 6 (Reuters) – Volkswagen must regularly check its operations in China to ensure its supply chains are safe and comply with human rights laws, two of the carmaker’s investors said, after an audit of its jointly owned Xinjiang site found no sign of forced labour.
The demands made by Union Investment and Deka Investment on Wednesday reflect ongoing concerns over Volkswagen’s engagement in the Xinjiang region, where rights groups have documented abuses including forced labour in detention camps.
Beijing denies any such abuses.
The result of the Volkswagen-commissioned audit comes as Germany is carefully recalibrating its relationship with China, its biggest trading partner, to reduce its exposure to a market that is also a systemic rival.
Volkswagen said on Tuesday that the much-anticipated audit, which was carried out by Germany’s Loening Human Rights & Responsible Business GmbH and two Chinese lawyers from a firm in Shenzhen, had found no evidence of forced labour.
Loening, however, noted that the audit had been limited to the site, a joint venture with SAIC Motor (600104.SS), adding the situation in Xinjiang and the challenges in collecting data for audits were well known.
Germany’s Association of Critical Shareholders (DKA), which represents small investors on environmental, social and governance issues, said the audit was raising more questions than it answers.
“If even a single audit … is so difficult, and can only happen without freedom of expression and labour union rights … further audits can hardly be considered an effective measure,” DKA co-managing director Tilman Massa said.
NO ‘ONE-OFF EXERCISE’
A Volkswagen logo is seen on a Volkswagen ID.5 electric car on display at a showroom of a car dealer in Reze near Nantes, France, November 13, 2023. REUTERS/Stephane Mahe Acquire Licensing Rights
While calling the audit a step in the right direction, Henrik Pontzen, who heads sustainability and ESG at Union Investment, said Volkswagen had not yet reached its goal.
“There is still a lot to do: In China, audits must not remain a one-off exercise. A functioning complaints management system must also be established,” he said.
He also said that Volkswagen’s corporate governance, which has drawn criticism from some of its smaller shareholders, remained the Achilles heel of Europe’s top automaker.
Ingo Speich of Deka Investment, which according to LSEG data owns $99 million worth of Volkswagen’s preferred stock, welcomed the results of the audit but demanded more transparency in Volkswagen’s supply chain.
“Investor pressure has worked. VW has followed the example set by BASF (BASFn.DE), which already started audits in China at a very early stage,” he said.
Shares in Volkswagen were up 3.4% to 112.26 euros at 1144 GMT, lifting them to the top of the gainers on Germany’s blue-chip index, with traders pointing to relief after index provider MSCI (MSCI.N) gave it a ‘red flag’ in its social issue category in 2022, prompting some investors to drop the stock.
Volkswagen’s stock market value has halved to 57.6 billion euros in the past two years. Its shares are down 26% year-to-date, underperforming a 37% rise in the STOXX Europe 600 Auto index .
The automaker’s shares trade at just 3 times forward earnings over the next 12 months, down from 8.8 two years ago, which was the highest among its European competitors.
The price-to-earnings ratio, widely used in financial markets to gauge the relative value of stocks, is now below the 5 for the European car sector.
Reporting by Victoria Waldersee; Additional reporting by Josephine Mason; Writing by Christoph Steitz; Editing by Alexander Smith and Mark Potter
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[1/2]Construction cranes are seen at dusk at an apartment complex under construction in Madrid, Spain, November 21, 2022. REUTERS/Susana Vera/File Photo Acquire Licensing Rights
MADRID, Dec 5 (Reuters) – Spanish property prices rose 4.5% from a year earlier in the third quarter, led by the highest increase in new home prices in 16 years, official data from the country’s National Statistics Institute (INE) showed on Tuesday.
New home prices in the quarter were up 11% compared with the same period a year ago due to low supply, high demand from foreign buyers and an increase in costs due to inflation.
Second-hand home prices were up 3.2% versus last year.
“The rise, especially in new housing, is largely due to the fact that we are still at very low levels of new housing production, below 100,000 new homes per year,” said Javier Diaz Izquierdo, a real estate analyst at Madrid-based broker Renta 4.
In 2006, Spain approved 850,000 new licences to build homes before the property market collapsed, triggering a financial crisis years later.
Diaz said the rise in prices was also driven by the profile of new home buyers who tend to be less indebted and less sensitive to interest rates and price rises.
“There are also lots of foreign buyers that drive prices higher in holiday areas,” he said.
Last week, Bank of Spain Governor Pablo Hernandez de Cos said property prices required close monitoring, although the risk of them becoming over-valued had lessened.
On Tuesday, online property portal Fotocasa said interest in house buying exceeded pre-pandemic levels, and the reduction in supply over the past year would make it even more difficult to reach a balance quickly.
“We predict that by the end of the year the price increase will be close to 5%,” said Maria Matos, a spokesperson for Fotocasa.
Reporting by Emma Pinedo, additional reporting by Jesús Aguado, editing by Charlie Devereux and Christina Fincher
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A “sold” sign is seen outside of a recently purchased home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger/File Photo Acquire Licensing Rights
NEW YORK, Dec 4 (Reuters) – U.S. home buyers are becoming more willing to purchase properties even as interest rates stay high, according to a study by Bank of America (BAC.N) published on Monday.
About 62% of respondents said they would wait for borrowing costs to fall before buying a house, according to 1,000 people polled in September. That is down from 85% six months earlier.
“We are beginning to see that lack of patience play out in the survey, which ultimately should lead to activity going forward,” Matt Vernon, head of consumer lending at Bank of America, told Reuters.
In a bid to tame inflation, the Federal Reserve has raised its policy rate a total of 5.25 percentage points in the last 20 months. The U.S. economy is showing signs of cooling, raising expectations that the rate hikes are likely done.
Nearly 80% of U.S. mortgages have an interest rate below 5%. That compares with average 30-year fixed mortgage rates that surged to 8% in October, the highest in more than two decades, which deterred buyers.
“There’s a clear desire for homeownership, but for some, it has become more challenging to achieve due to current market realities,” added Vernon.
Homeowners were willing to sell their existing homes and take on higher-interest mortgages if they found a property in a more affordable area or their dream home became available, the survey showed. They also sold their homes for career or family reasons or to seek a lower cost of living.
New-home sales dropped 5.6% to a seasonally adjusted annual rate of 679,000 units last month as mortgage rates squeezed out buyers.
Still, Americans’ pent-up demand for homes is expected to increase sales.
“We will be ready and we will be able to utilize our internal resources to meet the improved demand when it happens,” Vernon said.
The second-largest U.S. lender beat Wall Street estimates in its third quarter earnings and its consumer banking revenue increased 6% year-on-year to $10.5 billion.
Reporting by Nupur Anand in New York; Editing by Lananh Nguyen and Leslie Adler
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NEW DELHI, Dec 2 (Reuters) – If India needed any more proof that it was in the midst of a huge housing boom, it got in this week’s GDP data, heightening expectations that the industry will continue to power the economy for years to come.
The construction sector grew 13.3% in July-September from a year earlier, up from 7.9% in the previous quarter and its best performance in five quarters, the data released on Thursday showed.
That helped India expand at a forecast-beating 7.6%, making it one of the world’s fastest-growing major economies. In contrast, Western economies have been squeezed by high interest rates and energy prices, while China has been hobbled by a debt crisis in its property sector.
The long-awaited boom – which has created millions of jobs – comes after about six years of debt and pandemic-induced downturn before the construction sector began improving last year and hitting its stride this year. It has been driven by rising incomes for many Indians, a severe housing shortage in big cities and strong population growth.
The world’s most populous nation had an urban housing shortage of around 19 million units last year – and that is expected to double by 2030, according to government estimates.
“The robust growth in construction has significantly contributed to the economic growth – and is likely to play the same role in next couple of quarters,” said Sunil Sinha, an economist at India Ratings and Research, an arm of rating agency Fitch.
Builders are bullish long-term with many saying the boom could last two to three years and some even more optimistic.
“The housing market could continue to perform well for another three to four years,” Sanjeev Jain, managing director at Parsvnath Developers, a leading real estate company, noting that India is in the initial stages of a housing growth cycle.
Home sales in India’s seven largest cities, including Mumbai, New Delhi and Bangalore, rocketed 36% in the July-September quarter from a year earlier to more than 112,000 units, despite an 8%-18% increase in prices, according to real estate consultancy Anarock.
There was also a 24% increase in new residential projects being launched, data from the consultancy showed.
“The home sales are driven by first-time buyers, and nearly 80% of the houses have been bought by end users,” said Prashant Thakur, head of research at Anarock, adding that there was also strong demand from existing home owners to move to more spacious apartments.
In Mumbai, for example, demand has been strong despite an increase in interest rates of about two percentage points, according to Jayesh Rathod, director of Mumbai-based Guardian Real Estate Advisory.
His company has sold over 5,500 flats in Mumbai and on its outskirts in Thane so far this year, a jump of more than 50% compared to the same period a year ago, he said.
Underpinning demand has been salary hikes for workers in big cities. Average hikes for sectors such as e-commerce, healthcare, retail and logistics have remained above 10% for a second straight year, according to EY estimates.
Home prices in India are expected to rise faster than consumer inflation next year, according to a Reuters poll, with property analysts saying growth will be driven by higher earners snapping up newly built luxury residences in cities.
Housing demand has also picked up significantly in smaller cities in the southern states of Tamil Nadu, Karnataka and Prime Minister Narendra Modi’s home state of Gujarat, according to construction companies who say demand has been spurred by increases in incomes and the migration of workers from rural areas.
The government is also trying to boost the availability of affordable housing by providing subsidies, which is encouraging construction in India’s smaller towns and cities.
Shares in property companies have naturally surged.
The Nifty realty index (.NIFTYREAL) is up some 67% for the year to date compared with a 12% gain for the blue-chip Nifty 50 index.
Notable gainers include Prestige Estates Projects (PREG.NS) which has jumped some 120%, DLF (DLF.NS) which has climbed 67% and Godrej Properties (GODR.NS) which is up 52%.
($1 = 83.3143 Indian rupees)
Reporting by Manoj Kumar, Additional reporting by Nigam Prusty; Editing by Ira Dugal and Edwina Gibbs
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A tradesman works on the roof of a house under construction at a housing development located in the western Sydney suburb of Oran Park in Australia, October 21, 2017. Picture taken October 21, 2017. REUTERS/David Gray Acquire Licensing Rights
BENGALURU, Dec 1 (Reuters) – The Reserve Bank of Australia will keep its key interest rate unchanged at 4.35% on Tuesday and a rate cut is now not expected to happen until the fourth quarter of next year due to a strong housing market, according to a Reuters poll.
Even with rates at a 12-year high, Australian home prices have recovered all of their 2022 losses since finding a floor in January. They are expected to rise 8% this year and another 5% next year, a separate Reuters poll showed.
“We expect there will be no change from the RBA next week, but we do think they will maintain a hawkish bias. So they’re going to talk up the prospect of rate hikes, but ultimately we don’t think they’re going to deliver,” said Ben Picton, senior strategist at Rabobank.
The interest rate poll, conducted Nov. 29-Dec. 1, showed 28 of 30 economists, including those at Australia’s big four banks, expect the central bank will keep its official cash rate (AUCBIR=ECI) on hold on Dec. 5.
Although consumer price inflation in October logged a slower annual pace of 4.9% growth compared with 5.6% in September, that was still well above the RBA’s 2-3% target range.
Two economists, however, predicted a 25 basis point hike.
Looking further ahead, 20 of 29 economists predicted the RBA will hold rates steady until end-March while the rest forecast a quarter percentage point hike by then.
Poll medians showed rates on hold until end-September followed by a 25 basis points cut to 4.10% in the last quarter of 2024, one quarter later than predicted in a November survey and putting the RBA behind many of its peers.
The Australian housing market, already one of the most expensive in the world, is expected to maintain steady growth as increasing demand outstrips supply.
Expectations for average home prices in Australia this year have been revised up consistently – from a 9.1% fall in Reuters’ February poll to an 8.0% rise in the December poll, underscoring the market’s resilience in spite of higher interest rates.
“Multiple consecutive interest rate rises earlier in the year were expected to considerably impact Australia’s current mortgage holders. However, distressed sales were relatively minimised due to increasing cash buyers propping up the residential market and the Australian economy continuing to hold full employment,” wrote Michelle Ciesielski at Knight Frank, who took part in the Nov. 16- Dec .1 survey of 11 property analysts.
“Compared to the significantly higher migration, the current limited number of new homes being built or being started by developers points to inevitably higher house prices being achieved in 2024.”
The poll, which asked about the outlook for home prices in Sydney, Melbourne, Brisbane, Adelaide, and Perth, showed expectations ranging between 3.5% and 7.0% growth for both 2024 and 2025.
Asked about how the ratio of home ownership to renters will change over the coming five years, all nine analysts who responded to the question said it would decrease.
“Affordability looks terrible right now because home prices are back to their record highs and interest rates are at their multi-year highs, which means you’re kind of getting hit from both sides,” said Diana Mousina, deputy chief economist at AMP.
“Affordability could improve if prices fall a little bit and it will also improve marginally if the RBA cuts interest rates. But it’s not going to improve dramatically unless you see a very big fall in prices by 30%, if not more.”
(Other stories from the Reuters quarterly housing market polls)
Reporting by Devayani Sathyan; Polling by Susobhan Sarkar and Anant Chandak; Editing by Ross Finley, Jonathan Cable and Edwina Gibbs
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A rainbow is seen over apartments in Wandsworth on the River Thames as UK house prices continue to fall, in London, Britain, August 26, 2023. REUTERS/Kevin Coombs/File Photo Acquire Licensing Rights
LONDON, Dec 1 (Reuters) – British house prices rose unexpectedly in monthly terms for the third time running in November, adding to signs that the housing market downturn has abated, mortgage lender Nationwide said on Friday.
House prices rose by 0.2% on the month in November, after a 0.9% increase in October. A Reuters poll of economists had pointed to a fall of 0.4%.
Compared with a year ago, house prices were 2% lower – the smallest such drop in nine months.
Britain’s housing market, which boomed during the COVID-19 pandemic, had been hit by higher borrowing costs as the Bank of England battles the highest rate of inflation among large advanced economies.
“There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity,” said Robert Gardner, chief economist at Nationwide.
Reporting by Andy Bruce; editing by Sarah Young
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Governor of the Bank of Canada Tiff Macklem walks outside the Bank of Canada building in Ottawa, Ontario, Canada June 22, 2020. REUTERS/Blair Gable/File Photo Acquire Licensing Rights
BENGALURU, Nov 30 (Reuters) – The Bank of Canada will start cutting interest rates in the second quarter of next year as inflation and the economy slow, according to economists polled by Reuters, who forecast base borrowing costs will drop by at least one percentage point by end-2024.
BoC Governor Tiff Macklem said in a recent speech “interest rates may now be restrictive enough” with excess demand gone and weak growth expected to persist, leading most to conclude the central bank is done hiking.
But Macklem also said “right now, it is not time to start thinking about cutting interest rates.”
While the economy was expected to have grown a modest 0.2% annualized rate last quarter after contracting 0.2% in April-June, inflation has come down significantly to 3.1% last month from a peak of 8.1% in June 2022.
All but one of 26 economists in a Reuters poll taken Nov. 27-30 forecast the BoC will now keep its main policy rate on hold at 5.0% until at least end-March, similar to what is expected from the U.S. Federal Reserve.
Only Barclays expects one more 25 basis point rate hike in January. Interest rate futures are pricing the first rate cut in March, earlier than the poll prediction.
“It’s readily apparent in the past two quarters, interest rates in the 5% range are a significant headwind to growth, one that is desirable now while the BoC seeks to cool inflation, but too much of a drag to be sustained for a full year ahead,” said Avery Shenfeld, chief economist at CIBC Capital Markets.
“Our call does imply a bigger gap between U.S. and Canadian rates, but that’s consistent with the evidence at hand that shows the American economy, due to lower household debt levels and locked-in long-term mortgages, is better able to withstand interest rates near 5%.”
The poll predicts that the BoC will start cutting interest rates from the second quarter and medians showed it would deliver 100 basis points of rate cuts next year, more than the 75 basis points expected from the Fed.
About 70% of economists, 18 of 26, expected the rate to be at 4.0% or lower by end-2024, much below the expected fed funds rate, in a 4.50-4.75% range.
“The Bank of Canada will be thinking ahead with its policy rate still at 5%…(and) it will basically conclude the hiking cycle has done its job and it needs to start shifting towards a more normal monetary policy setting,” said Robert Hogue, assistant chief economist at RBC.
Economists at Desjardins were slightly more pessimistic than others on growth, expecting “a short, shallow recession in the first half of 2024.”
“Accompanying labour market weakness should put downward pressure on inflation and prompt the Bank of Canada to cut the policy rate around of the spring of 2024,” they wrote.
With nearly 60% of mortgage holders yet to renew their home loans at higher rates, the big question is what do these rate cut expectations mean for the housing market and for those who for years have been eagerly waiting to own a home.
A separate Nov. 15-30 poll of 11 property analysts forecast average home prices, which surged over 50% during the pandemic, to stagnate in 2024 after declining 3.3% this year, compared to a 2024 rise of 2.0% predicted in an August poll.
All but one of nine property market analysts said purchasing affordability next year would improve. But seven of nine respondents said the proportion of home ownership to renters would decrease over the coming five years.
That was despite several government measures announced in the latest Fall Economic Statement to boost housing supply and help lenders dealing with homeowners at risk amid high interest rates.
Sebastian Mintah, an economist at Moody’s Analytics, said the new supply set to come to market will mostly address past shortages, not prepare for the future.
“Given strong demographics are expected to continue, a continued robust pace of new building is needed. Problematically, new supply is likely to come up short as builders turn more cautious.”
(For other stories from the Reuters global economic poll:)
Reporting by Mumal Rathore; Editing by Ross Finley and Tomasz Janowski
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[1/2]A house-for-sale sign is seen inside the Washington DC Beltway in Annandale, Virginia January 24, 2016. REUTERS/Hyungwon Kang/Files/File Photo Acquire Licensing Rights
BENGALURU, Nov 30 (Reuters) – U.S. existing home sales are forecast to remain subdued next year and beyond as high mortgage rates force homeowners to stay put, according to a Reuters poll of analysts, who also expected house prices to edge higher.
The rate on the popular 30-year fixed-rate mortgage hit a more than two-decade high just under 8% last month, leading to a 4.1% drop in U.S. existing home sales last month alone to the lowest annualized rate since 2010, 3.79 million units.
The 30-year mortgage rate has since retreated a bit to levels last seen in late September, but is expected to average 6.5% throughout next year, according to the poll, not averaging below 6% until 2025.
Home resales, which account for the bulk of U.S. housing transactions, were expected to average a little over 4 million units next year. That is a far cry from an average 6 million in 2021 during the pandemic housing boom and the 5.3 million average over the past quarter century.
While interest rate cuts are on the way next year, they may not be enough to significantly alter the trend. The Federal Reserve will cut rates by 75 basis points by the end of 2024, with the first cut in the second quarter, a separate Reuters poll found.
Despite those cuts, mortgage rates are likely to be too high to entice existing homeowners to put property up for sale, analysts said.
“Existing home sales have been constrained by the lack of resale inventory available in the market,” said Crystal Sunbury, senior real estate analyst at RSM, a U.S.-based consulting firm.
“We may see more resale units come into the market, as mortgage rates ease. But resale inventory is not expected to climb substantially, as over 80% of current homeowners are estimated to have mortgages under 5% and the vast majority will not be willing to trade up their mortgage for a higher rate.”
Existing home sales were forecast to average 3.84 million annualized units this quarter, followed by 3.90 million, 4.03 million, 4.20 million and 4.38 million units over the next four quarters.
Meanwhile, property developers are cranking up housing supply to take advantage of the demand-supply mismatch. Residential investment rebounded in the third quarter after contracting for nine straight quarters.
An overwhelming 83% majority of analysts, 20 of 24, said supply of affordable homes over the coming two to three years will improve. But only five said the improvement would be enough to keep up with demand.
Poll medians showed average house prices as measured by the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rising 2.7% this year and 1.8% in 2024. That was an upgrade from a September survey where prices were forecast to flatline in both years.
Low single-digit price rises would represent a more stable outlook in the housing market, which in the pandemic years alone soared nearly 45%. But for most first-time buyers, the average home price is already prohibitively high, requiring a huge deposit before purchase.
“The housing market continues to experience a tug of war between buyers who are priced out due to high mortgage rates and owners who are locked in to their existing mortgages,” said Cristian deRitis, deputy chief economist at Moody’s Analytics.
“Limited supply of homes available for sale will continue to support prices in the short term.”
In the meantime, many young families who can’t afford to put down a deposit or take out mortgages at these rates will have to continue renting, which has been extremely expensive in recent years. Rents are only now starting to decline more broadly.
A slight majority of poll respondents, 13 of 22, said the proportion of home ownership to renters will increase somewhat or increase significantly over the coming five years. The remaining nine said it would decrease.
(Other stories from the Reuters quarterly housing market polls)
Reporting by Hari Kishan; Polling by Anitta Sunil and Prerana Bhat; Editing by Ross Finley and Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
The company logo is seen on the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021. REUTERS/Aly Song/File Photo Acquire Licensing Rights
HONG KONG, Nov 30 (Reuters) – China Evergrande Group (3333.HK), the world’s most indebted property developer, is seeking to avert a potentially imminent liquidation with a last-minute debt restructuring proposal, three people with direct knowledge of the matter said.
The defaulted company has until a Hong Kong court hearing on Monday to present a “concrete” revised debt restructuring proposal for offshore creditors, a judge said last month after its original plan had lapsed.
But the sources, who declined to be named as the talks are private, told Reuters that creditors were unlikely to accept Evergrande’s new proposal given low recovery prospects and growing concerns about the developer’s future.
With more than $300 billion in liabilities, Evergrande exemplifies a crisis in China’s property sector, which makes up one-quarter of the world’s second-biggest economy. The authorities have scrambled to support the sector as the troubles of embattled developers roiled global markets.
Guangzhou-based Evergrande, which defaulted on its offshore debt in late 2021, did not respond to a request for comment.
Ahead of the hearing when the Hong Kong High Court will rule on a liquidation petition, Evergrande this week offered to swap some debt held by offshore creditors into equity in the company and two Hong Kong-listed units, and repay the rest with non-tradeable “certificates” backed by offshore assets, two sources said.
The offshore assets include the developer’s minority stakes in other companies and its receivables, one of the two sources said, and the certificates would be redeemed by Evergrande when it successfully disposes of the assets. The plan is not expected to require regulatory approval, as Chinese regulators have banned the developer from issuing new bonds, he added.
The new proposal also offers creditors a 17.8% stake in Evergrande, in addition to an October offer, previously reported by Reuters, of 30% stakes in each of its two Hong Kong units – Evergrande Property Services Group (6666.HK) and Evergrande New Energy Vehicle Group (0708.HK) – the person said.
Many creditors were dissatisfied with the October terms as they implied a major haircut on investments, sources have said, forcing Evergrande to scramble to sweeten the deal in what could be its final attempt to avoid liquidation.
LIQUIDATION CHALLENGES
The spectre of a messy collapse of Evergrande has been a major concern for global investors as the Chinese economy sputters, with property sales slowing and hundreds of thousands of unfinished homes across the country.
Chinese authorities have announced a string of measures to revive the sector destabilised by the debt woes of giants like Evergrande and Country Garden (2007.HK).
Evergrande’s debt revamp hopes were derailed in late September when the company said billionaire founder Hui Ka Yan was under investigation for unspecified “illegal crimes”.
The developer was banned from issuing dollar bonds, a key part of the restructuring plan, and its flagship mainland unit was put under investigation by regulators.
If the Hong Kong court orders Evergrande’s liquidation, a provisional liquidator and then an official liquidator would be appointed to take control and arrange to sell the company’s assets to repay its debts.
In addition to shares of its two Hong Kong-listed units, this would include selling its onshore assets, which could face significant challenges, restructuring experts say.
A lawyer for an ad hoc group of key offshore bondholders told the Hong Kong court last month that the restructuring plan could have a higher recovery rate for creditors than liquidation, in which they would get back less than 3%.
Still, the group has nominated consultancy Alvarez & Marsal as its preferred liquidator, two other sources said, as creditors anticipate a potential liquidation of Evergrande, whose liabilities and assets are largely in mainland China.
Alvarez & Marsal did not immediately respond to request for comment.
Top Shine, an investor in Evergrande unit Fangchebao, filed the liquidation petition in June 2022 after it said the developer failed to honour an agreement to repurchase shares the investor had bought in the subsidiary.
Reporting by Clare Jim and Xie Yu in Hong Kong, Scott Murdoch in Sydney; Editing by Sumeet Chatterjee and William Mallard
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