China Evergrande Says Construction Has | Stock Market News Today

Troubled property developer

China Evergrande Group

EGRNF -10.55%

said construction work has resumed at more than 90% of its stalled residential projects, adding that it has picked up the pace of delivering apartments promised to home buyers across the country.


EGRNF -10.55%

in a statement Sunday night, said more than 80% of its suppliers of materials and decorative services have “resumed cooperation,” and that it has signed thousands of new contracts with various suppliers. At the end of August, the developer disclosed that construction had been suspended at some projects after it fell behind on payments. And by October, hundreds of Evergrande’s unfinished developments were affected by work stoppages.

With just a few days to go before the end of 2021, Evergrande said it intends to deliver 39,000 homes in 115 projects to buyers across China in December. It compared that to its completion of fewer than 10,000 units in each of the preceding three months.

The world’s most indebted real-estate firm Evergrande has embarked on a social media campaign to show construction has resumed and says it’s doing whatever it takes to deliver homes. WSJ compares these posts with ones from upset buyers. Photo Composite: Emily Siu

In a post on social media Monday, Evergrande said apartment projects have been handed over in batches in 18 provinces and it released photos of completed buildings adorned with bright red decorations and people signing papers to take ownership of their homes.

Despite this, Evergrande still has many more commitments to fulfill and its debt crisis remains unresolved. The 25-year-old developer used to be one of the country’s largest by contracted sales and is on the hook to deliver units to more than one million people. Many buyers made large down payments on unfinished flats, expecting to take ownership of them in a few years.

Hui Ka Yan,

Evergrande’s founder and chairman, said that “under the care and guidance of governments at all levels,” as well as support from partners, financial institutions and other constituents, the developer has made progress in its commitments to homeowners.

He added that Evergrande would do whatever it takes to resume work and deliver homes and predicted that the firm will eventually be able to “resume sales, resume operations, and pay off debts.”

Hui Ka Yan, China Evergrande’s chairman, in Hong Kong in 2019.


Paul Yeung/Bloomberg News

The company’s statement followed comments over the weekend from two Chinese regulators which said they would safeguard the rights of homeowners and keep the property sector stable. Beijing has been trying to prevent Evergrande’s debt crisis from hurting the many small businesses and ordinary citizens that the developer owes money and apartments to.

Wang Menghui,

head of China’s Ministry of Housing and Urban-Rural Development, said in an interview with the state-run Xinhua News Agency that the regulator will address the risks of some leading developers that fail to deliver projects on time, with the goal of “guaranteeing home deliveries, protecting people’s livelihoods and maintaining social stability.”

The People’s Bank of China separately said—as part of a wide-ranging statement on the economy—that it would protect the rights and interests of homeowners and promote the healthy development of the country’s real-estate market.

Evergrande, the world’s most indebted developer, has been struggling under the weight of roughly $300 billion in liabilities, including around $20 billion in international bonds. The developer has missed payment deadlines on some of its dollar bonds, setting the stage for a massive and complex restructuring. Major credit raters have declared it to be in default.

Earlier this month, the conglomerate sought help from the government of its home province, Guangdong. It has since set up a risk-management committee that includes representatives from several state-backed entities.

Evergrande recently said the committee is working to help contain its risks and will engage with its creditors. Some international bondholders, however, have said there has been little communication from the company so far, the Journal reported last week.

The company’s Hong Kong-listed shares have plunged in value this year to historic lows and its dollar bonds are trading at deeply distressed levels. Markets in Hong Kong were closed Monday for a public holiday.

Write to Anniek Bao at [email protected]

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The Bonds That Cried Major Default Risk | Sidnaz Blog

The villagers in “The Boy Who Cried Wolf,” bored of their shepherd boy’s constant false alarms, refuse to come to his aid when a wolf finally does appear. There may be a lesson in the fable for investors in Chinese property giant Evergrande and the country’s real-estate market more broadly.

Heavily leveraged Evergrande is in the midst of yet another financial squeeze. The company announced Sunday and Monday that it has recently sold almost $1 billion of holdings in two companies—internet services firm HengTen Networks and smaller real-estate developer China Calxon. Fitch Ratings cut Evergrande’s credit rating Tuesday from B+ to B, noting the company’s seemingly limited access to capital markets and growing dependence on less stable shadow-banking loans.

The current wobble has been unfolding for three weeks: It began when regulators started examining the relationship between Evergrande and Shengjing Bank, a regional lender in which the property developer has built a large stake.

Evergrande’s March 2022 bond currently yields a little over 20%, up from as low as 8.6% in late May. And the company’s share price is down almost 30% year-to-date, making it one of the few companies anywhere trading at the depressed levels of March 2020.

An Evergrande building in Huai’an, Jiangsu province.


SIPA Asia via ZUMA Press

Close watchers of Evergrande can rightly say that it is not the company’s first financial tremor. Nor is it its second or third. Spikes in the company’s bond yields are relatively common. Optimists note that after a $1.5 billion bond maturing on June 28, it has no offshore bonds due for the rest of the year.

But there are many risks for Evergrande outside of what is technically recognized as debt. This month the company said it would repay a small amount of overdue commercial acceptance bills, a form of short-term IOUs on which the firm is heavily reliant. The company’s accounts payable, the balance sheet category that covers those liabilities, ran to about $95 billion at the end of 2020. That has more than tripled in five years.

The company’s 2020 results also make clear that the amount it owes to home buyers who’ve paid large deposits for unbuilt apartments rose rapidly in 2020. Fitch notes that while contracted sales have been rising, average selling prices have fallen, dropping 13% in 2020 and 7% in 2021 so far. That boosts cash inflows in the short term, but means even greater obligations and less money to pay for them in the long term.

And unlike the company’s September 2020 squeeze, when bond yields surged over concerns regarding its relationship with a handful of strategic investors, debts owed to thousands of small businesses and households can’t be so easily extended.

The bond market has told many tall tales of imminent defaults for Evergrande, and none have materialized. Perhaps these latest rumblings will come to nothing—but that doesn’t mean the wolf won’t eventually get his dinner.

Write to Mike Bird at [email protected]

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Pandemic Hangover: $11 Trillion in Corporate Debt | Sidnaz Blog

Before the pandemic, U.S. companies were borrowing heavily at low interest rates. When Covid-19 lockdowns triggered a recession, they didn’t pull back. They borrowed even more and soon paid even less.

After a brief spike, interest rates on corporate debt plummeted to their lowest level on record, bringing a surge in new bonds. Nonfinancial companies issued $1.7 trillion of bonds in the U.S. last year, nearly $600 billion more than the previous high, according to Dealogic. By the end of March, their total debt stood at $11.2 trillion, according to the Federal Reserve, about half the size of the U.S. economy.

That torrent of inexpensive money has benefited all types of businesses. It helped cruise operators, airlines and movie theaters weather the pandemic by replacing some lost revenue with cash raised from bond sales. It allowed thriving businesses to stock up on cash and to save money by refinancing older debt. And it permitted companies that were struggling before the pandemic to ease the threat of bankruptcy by issuing new long-term debt.

“It’s been surprising that the cost of debt has come down as much as it has,” said

Dan Schlanger,

chief financial officer of

Crown Castle International Corp.

, a cell tower owner that has been issuing bonds with progressively lower interest rates to fund capital projects and pay off debt. “We’ve enjoyed the period of time we’re in.”

The question now is whether companies have merely delayed a reckoning. Debt-laden companies withstood last year’s recession far better than many had feared. But it was in many ways a unique shock to the economy, more akin to a natural disaster than a typical recession. For all their current enthusiasm, many CFOs and investors acknowledge that businesses could still be punished in a normal downturn that raises borrowing costs for a longer period and does more serious damage to household finances.

In a May report, the Federal Reserve noted that, by one measure, investors had rarely been compensated any less for the risk of holding corporate bonds, even as stock valuations were in line with historical averages. The report concluded that “vulnerabilities arising from business debt remain elevated.”

Some of the biggest borrowers during the pandemic, according to figures from financial-data provider FactSet, have been those hurt most by it.

Carnival Corp.

CCL -2.84%

, the world’s largest cruise operator, had around $33 billion of total debt as of Feb. 28, almost triple what it had near the end of 2019.

Boeing Co.

BA -0.79%

’s total debt more than doubled during the pandemic, to $64 billion, while

Delta Air Lines Inc.’s

doubled to around $35 billion.

Delta Airlines doubled its total debt to around $35 billion.


David Zalubowski/Associated Press

With cruises canceled around the world, raising money early last year wasn’t easy for Carnival. Chief Financial Officer

David Bernstein

said he spent two weeks in March 2020 to try to put together a bond sale, only for debt investors to balk because the company wasn’t also planning to issue more stock.

It took him another 10 days working nearly around the clock to put together a deal that included a stock offering. In early April last year, Carnival issued $4 billion of secured bonds with an 11.5% interest rate—a level typically associated with businesses with rock-bottom credit ratings—along with $500 million of stock and about $2 billion of convertible bonds.

“Somehow I managed to raise $6.5 billion,” Mr. Bernstein said. “I was amazed.”

From then on, though, as investor demand for corporate debt rebounded, borrowing money got easier. Carnival sold bonds or obtained loans from investors five more times over the next 10 months, finally issuing $3.5 billion of unsecured bonds in February at a 5.75% rate. In April, Mr. Bernstein said Carnival had raised enough money to last until it resumes full operations.

Corporate Debt Boom

U.S. corporate bond issuance has surged to record levels during the pandemic, aided by low borrowing costs, pushing total corporate debt to the equivalent of half the size of the economy.

U.S. nonfinancial corporate bond issuance*

Average U.S. investment-grade corporate bond yield, monthly

U.S. corporate debt as percentage of GDP, quarterly

U.S. nonfinancial corporate bond issuance*

Average U.S. investment-grade corporate bond yield, monthly

U.S. corporate debt as percentage of GDP, quarterly

U.S. nonfinancial corporate bond issuance*

Average U.S. investment-grade corporate bond yield, monthly

U.S. corporate debt as percentage of GDP, quarterly

Interest rates on corporate debt have declined in fits and starts since the 1980s, generally tracking short-term rates set by the Fed and U.S. government bond yields.

Several factors account for the decline. Low inflation is one. Also, economic growth has trended lower over the decades, limiting how high the Fed can raise rates without tipping the economy into a recession.

During the 2008-09 financial crisis, the Fed cut its benchmark federal-funds rate to near zero for the first time and started buying large quantities of U.S. Treasurys and mortgage-backed securities in an effort to boost the economy.

Investors seeking higher yields subsequently piled into riskier assets, ushering in an era of supersize debt sales.

The pandemic pushed the prevailing trends to extremes. The Fed again cut the federal-funds rate to zero and resumed purchasing Treasurys. It also broke new ground by buying corporate bonds, bolstering investor confidence.

After setting a record last year, overall corporate bond issuance remains robust this year, and higher-risk, speculative-grade bonds are now on pace to set their own record.

For many companies that weren’t thrown into crisis by the pandemic, the booming bond market has provided an opportunity to slash interest expenses.

At the start of 2020, the average investment-grade corporate bond yielded 2.84%, a rough indication of the interest rate companies with solid credit ratings would have to pay on new bonds. At the peak of pandemic fears, it rose to about 4.6%, but by the end of last year it had fallen to an all-time low of 1.74%. Companies rushed to try to lock in those low borrowing costs.

The Federal Reserve has said that, by one measure, investors had rarely been compensated any less for the risk of holding corporate bonds.


Ting Shen for The Wall Street Journal

AT&T Inc.,

T -0.90%

which as of March 31 had more outstanding debt than any other nonfinancial company, is one such company. In recent months, it announced deals to shed media and pay-TV assets that it said would reduce net debt by more than $50 billion.

It spent much of last year trying to take advantage of the bond boom to reduce interest expenses and push out debt maturities. In one deal, it issued $11 billion of bonds with maturities ranging from 7.5 years to 40.5 years to pay back bonds maturing over the next five years. In April, it said it had reduced its first-quarter interest expense by $150 million from the year-earlier period.

In June of 2020, Crown Castle, the cell tower operator, issued $2.5 billion of new bonds with maturities as long as 30 years, which enabled it to pay down bonds due in this year and next. And this year, it issued more bonds at its lowest ever interest rates.

Mr. Schlanger, the CFO, said the company can use interest savings to increase its profit margin, or it can pass them on to customers, which include the major U.S. wireless carriers. “Anytime we can take advantage of a market like this to either make more money or lower the cost to our customers, we’re more than happy to do so,” he said.

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Do you think U.S. companies can handle their elevated debt levels? Share your thoughts below.

By the end of last year, investors had worked up such an appetite for corporate bonds that they were willing to lend large sums to companies with near rock-bottom triple-C credit ratings. This year, triple-C bond issuance is running 35% above the previous record, according to LCD, a unit of S&P Global Market Intelligence.

Community Health Systems Inc.,

CYH -4.17%

one of the country’s largest for-profit hospital operators, has been struggling with the challenges of serving patients outside major cities, and with the fallout from a problematic acquisition. At the end of last year, it was poised to burn through more than $600 million of cash in 2021, according to

Moody’s Investors Service.

Undeterred, investors have snapped up a series of secured bond offerings from the hospital chain since December, enabling it to both reduce its interest expense and extend its debt maturities.

Chief Financial Officer

Kevin Hammons

said overall market conditions were a big help, enabling the company to take “a more aggressive approach in doing things quicker than we otherwise may have done.” He also attributed the successful offerings to improved earnings in the second half of last year and progress executing new strategies, which have involved selling underperforming hospitals.

Last month, Moody’s upgraded Community Health’s credit rating to just above its equivalent of a triple-C rating, citing the impact of its recent refinancing deals and improved operating performance.

Crown Castle International, a cell tower owner, has been issuing bonds with progressively lower interest rates to fund capital projects and pay off debt.


Greg Eans//The Messenger-Inquirer/Associated Press

Not everyone thinks it is good for the economy over the long term for struggling companies to have such an easy time refinancing debt.

Torsten Slok,

the former chief economist for Deutsche Bank Securities who is now chief economist at the asset-management firm

Apollo Global Management,

wrote last year that one consequence of persistent low interest rates is that it “keeps more unproductive firms alive, which ultimately lowers the long-run growth rate of the economy.”

Some analysts say investors are willing to accept such low interest rates on corporate bonds not only because of the brightening economic outlook but because of the Fed’s aggressive response to the pandemic, which they think could to be repeated in future recessions.

Others are doubtful that even if the Fed announced that it would buy corporate bonds again, it would provide the same jolt to the market it did last year. They say that the normal risks of debt still apply, and that corporate bond investors could face significant losses in the next economic downturn.

Scott Kimball, a portfolio manager and co-head of U.S. fixed income at BMO Global Asset Management, said he doesn’t expect debt to be a problem in the near term, but that it could start causing headaches for businesses and investors in a few years when companies have to start thinking about refinancing some of the bonds they recently issued. Then, he said, “in the next recession, it’s going to be a major issue.”

One encouraging fact for investors is that many companies didn’t add debt over the past year to buy back stock, increase dividends or otherwise juice returns for shareholders. They borrowed money on an emergency basis, and could be in position to pay down debt once that emergency is over.

Mr. Bernstein, Carnival’s CFO, said the company will reduce its debt in coming years by paying off bonds and loans as they come due, using cash generated from operations. The goal, he said, is to reclaim the same investment-grade ratings that the company had before the pandemic.

Boeing has said it will make debt reduction a priority once its cash flow becomes more normal.

Some companies that borrowed money in the pandemic have already started to pay it back.

Retailer Target already has begun paying off bonds issued last year.


Richard B. Levine/ZUMA Press

Delta has said it expects to return to its investment-grade profile within two years. It paid down a $1.5 billion loan in March and said in April that it would repay $850 million of additional debt by the end of this quarter.

The retailer

Target Corp.

TGT -0.49%

issued $2.5 billion of bonds in March 2020 when state and local governments were issuing lockdown orders. Its earnings, though, actually improved during the pandemic, and in October, the company paid down roughly $1.8 billion of its bonds before their maturity dates.

Similarly, food distributor

Sysco Corp.

SYY -0.94%

issued $4 billion of bonds in March of last year to bolster its cash holdings. Since last September, it has reduced its debt by roughly $3 billion, including the early repayment of roughly $700 million of its bonds.

“What we’re seeing is corporations make an active attempt to improve their balance sheets,” said

Matt Brill,

senior portfolio manager and head of North American investment grade at the asset manager

Invesco Ltd.

“And as long as we’re seeing that, we’re not going to be concerned.”

Still, he added, “there is certainly an elevated level of debt that needs to be repaid.”

Write to Sam Goldfarb at [email protected]

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Greensill Capital Is Target of U.K. Government Probe | Sidnaz Blog

A U.K. parliamentary committee is set to hear testimony from Greensill founder Lex Greensill today.


Kieran Cleeves/Zuma Press

The U.K.’s top financial regulator said it is investigating failed financial firm Greensill Capital, citing allegations of what it called “potentially criminal” matters.

The Financial Conduct Authority said it is collaborating with other U.K. enforcement agencies and authorities overseas as part of its investigation into Greensill’s collapse.

The disclosure came in a letter from the FCA to a U.K. parliament committee that is set to hear testimony from Greensill founder

Lex Greensill

on Tuesday. It will be Mr. Greensill’s first public comments since the firm tumbled into bankruptcy in March.

A representative for Greensill declined to comment.

Founded by Australian-born Mr. Greensill, the company billed itself as a technology startup that competed with traditional banks such as

Citigroup Inc.

and JPMorgan Chase & Co. Greensill’s goal was to offer supply-chain finance to companies that had fallen below the radar of traditional banks that preferred larger, more-established clientele.

Greensill plunged into crisis in March after it lost credit insurance that was crucial to its business.

Credit Suisse Group AG

CS -0.44%

froze $10 billion in investment funds that Greensill relied on to fuel much of its business. Greensill’s bank was taken over by authorities in Germany and is under investigation there into its accounting for loans to a major client.


What implications for supply-chain finance will the collapse of Greensill have? Join the conversation below.

The startup’s business model required complex financial engineering. It made supply chain loans to companies, then packaged them up into notes, selling those on to investors, which served as off-balance-sheet financing for Greensill.

The announcement of a government investigation ramps up pressure on Mr. Greensill, who has been working with the company’s bankruptcy advisers to salvage parts of the business.

The FCA’s letter cited “a number of allegations have been made in the press regarding the circumstances of Greensill’s failure, some of which are potentially criminal in nature.”

Write to Duncan Mavin at [email protected] and Julie Steinberg at [email protected]

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Stock Market Investors Must Keep an Eye on the Corporate Cash | Sidnaz Blog

Major corporations are sitting on a mountain of cash: a decadelong buildup was given another sharp lift by precautionary measures taken during the pandemic. Those balances are worth monitoring, because they have important implications for investment returns in the future.

Nonfinancial corporations in the euro area, Japan and the U.S. now sit on nearly $10 trillion of currency and deposits, about twice the level of a decade ago.

Those cash holdings are largest relative to the size of the economy in Japan—about 60% of GDP. In the eurozone, they make up more like 30%, and roughly 10% for the U.S.

Japan’s corporate cash buildup began in the 1990s, and it has weighed down returns on equity for shareholders.


Koji Sasahara/Associated Press

But what they all have in common is that they have risen considerably, and not just due to last year’s extreme circumstances. Cash balances in each country were climbing for a decade before the pandemic began, defying repeated suggestions that they would be deployed for buybacks or investment. Corporate treasurers then went on a borrowing spree last year building up precautionary cash piles.

It’s worth looking to Japan to see what the consequences might be. Its cash buildup began in the 1990s, during the country’s famous lost decade. The cash mountain has weighed down returns on equity for shareholders, since companies are asset heavy and cash assets yield little to nothing.

The country’s large corporate cash balances are often eyed hungrily by analysts who wonder how the pile might be deployed. Sometimes, activist investors get their way: Japanese corporate governance has become markedly more shareholder friendly in recent years.

But the overall cash buildup still effectively means that companies have looked at the investment options available and found them wanting. When a company determines that sitting on near zero-yielding assets is the best use of their funds, it paints a very dim picture of their collective view of the economy’s future.

If the U.S. economy recovers rapidly, companies will hopefully instead decide that capital spending is a better use for funds. Buybacks and dividends will probably recover, but their considerable growth during the decade after the global financial crisis was not enough to prevent the accumulation of cash.

The U.S. cash buildup is not yet in Japan’s league, but the situation appears to be heading that way in Europe. Investors should keep a close eye on where overall levels settle: if they stay up here where the air is thin, that will be a dispiriting signal about the future.

Write to Mike Bird at [email protected]

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