Creeping funding costs at above-market rates in the shadow banking world skew Evergrande's plan to pare back debt
- The developer has been shopping around for cash among small banks and private trusts at high rates to fund developments
- Evergrande also has had to quell concern about its cash flow
China Evergrande Group has taken to seeking loans at above-average interest rates in the shadow banking market, where caution even there over its cash flow hints at an increasingly fraught effort to reduce the property sector’s biggest debt.
The developer, which owed 835.5 billion yuan (US$125 billion) at June-end, has been shopping around for cash among small banks and private trusts at high rates to fund developments, as proposed limits to the permitted size of real estate debt stymie big-bank lending.
Its situation is the culmination of a decade of developers bingeing on cheap debt, fuelling a property boom. The firm owns China’s largest land bank at 240 million square meters (59,305 acres) – equivalent to the size of the Cook Islands – yet is the most indebted developer in the country’s most leveraged sector.
With the government now trying to slow property price rises and tightening mortgage availability – to restrain household debt in a pandemic-hit economy – the health of large, heavily indebted developers has come under increased scrutiny.