Exclusive: China Evergrande’s lenders weigh up loan losses, rolling over credit – sources

September 17, 2021

BEIJING/HONG KONG (Reuters) – One of China Evergrande Group’s main lenders has made provisions for losses on a portion of its loans to the embattled property developer, while some creditors are planning to give it more time to repay, four bank executives told Reuters.

The Chinese banks’ measures, reported for the first time, show how financial institutions in the world’s second-largest economy are bracing for a possible collapse of Evergrande.

The developer epitomised China’s freewheeling era of borrowing and building, with nearly $305 billion in liabilities across loans, bonds, so-called trust products and money owed to contractors and suppliers, among others.

Agricultural Bank of China (AgBank), the country’s No.3 lender by assets, has made some loan loss provisions for part of its exposure to Evergrande, one of the executives said, without giving details.

Meanwhile, China Minsheng Banking Corp and China CITIC Bank Corp Ltd, two other major Evergrande lenders, are prepared to roll over some of their near-term debt obligations, two separate sources with knowledge of each situation said.

AgBank, Minsheng, CITIC and Evergrande did not immediately respond to emailed requests for comment.

In general, Chinese banks’ exposure to Evergrande has fallen in the past year, and most of their outstanding loans are collateralized or guaranteed by deposits, according to the four sources.

All the sources declined to be named as they are not allowed to discuss individual clients.

Minsheng, for example, has cut its loan exposure to Evergrande to 30 billion yuan from 40 billion yuan over the past 12 months, one of the sources said, adding it also stopped offering new loans to Evergrande in recent months.

Last year, Evergrande reported total bank and other borrowings of 693.4 billion yuan ($107.4 billion) – including loans granted by trust firms rather than banks, which analysts said accounted for the bigger portion – down from 782.3 billion yuan in 2019.

Despite the retrenchment, an Evergrande collapse, even a managed one, would still reverberate through the Chinese economy given liabilities equal to 2% of the country’s GDP.

The company’s bank exposure is wide and a leaked 2020 document, written off as a fabrication by Evergrande but taken seriously by analysts, showed liabilities extending to more than 128 banks and over 121 non-banking institutions.

After that leaked document, the People’s Bank of China (PBOC), the central bank, requested all main Evergrande lenders to review their loan exposure and assess relevant financial risks on a monthly-basis, a source at a state-owned bank said.

The PBOC and the sector regulator, the China Banking and Insurance Regulatory Commission (CBIRC), did not immediately respond to Reuters requests for comment.

ORDERLY COLLAPSE

Evergrande is due to pay $83.5 million of interest on Sept. 23 for its offshore March 2022 bond. It has another $47.5 million interest payment due on Sept. 29 for March 2024 notes.

The bonds would default if Evergrande fails to pay the interest within 30 days.

Regulators have not given any indication to Chinese lenders of a possible bailout of Evergrande, said a source at one of the main trust creditors.

The editor-in-chief of the Chinese Communist Party-backed tabloid the Global Times on Friday warned Evergrande that it should not bet on a government bailout on the assumption it is “too big to fail”.

Chinese regulators have in the past reined in domestic banks’ unbridled lending to property companies, reiterated the need to curb property speculation, and emphasized the importance of deleveraging in the property sector.

It is possible the government may step in to manage an orderly collapse of Evergrande, said two banking sources familiar with the matter.

“And the regulators have done related risk evaluation among the financial institutions before letting it happen,” one of them said.

($1 = 6.4550 Chinese yuan renminbi)

(Reporting by Cheng Leng in Beijing, Julie Zhu and Clare Jim in Hong Kong; Ediitng by Sumeet Chatterjee and Mark Potter)

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