Caixin
Sep 07, 2021 08:28 PM
BUSINESS

Evergrande Pays Back Paint Supplier in Property as Overdue Debt Piles Up

The headquarters of Evergrande Group in Shenzhen, South China’s Guangdong province, on Feb. 9. Photo: VCG
The headquarters of Evergrande Group in Shenzhen, South China’s Guangdong province, on Feb. 9. Photo: VCG

A paint supplier of troubled property giant China Evergrande Group says the company has failed to pay back more than 100 million yuan ($16 million) in overdue commercial paper after repaying part of its debt with property, according to a company filing Tuesday.

As of Aug. 31, the real estate conglomerate owed Shanghai-listed Skshu Paint Co. Ltd. (603737.SH) a total of 336 million yuan in overdue short term debt, according to the exchange filing (link in Chinese). Evergrande has repaid 235 million yuan of that debt, including 220 million yuan in real estate and 15 million yuan in cash.

The three properties Evergrande plans to transfer to the paint company are still under construction. Two buildings, located in Hubei province, should be completed in 2022 and 2024, while the third, in the southern metropolis of Shenzhen, is expected to be finished in 2023, according to the filing.

The struggling property giant and its units owe a further 562 million yuan to Skshu Paint, in addition to the overdue commercial paper.

“Considering Evergrande may be struggling with cash flow problems in the short term, the company will accept property transfers as a form of debt repayment,” the paint company says in the filing. “If overdue payments are not repaid in the long-term, the company will consider filing lawsuits.”

Evergrande’s unpaid debt to the little-known paint maker reflects ongoing financial issues at one of China’s largest real estate developers and serves as a stark reminder of the potential for debt problems at large companies to spill over into the broader economy. It’s a concern that China’s top financial regulators highlighted in recent meetings with the developer.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission summoned its senior management in mid-August and ordered Evergrande to “maintain stable business operations” and “resolve debt risks.”

Since the end of 2020, the struggling property giant has refused to repay commercial checks in several instances, stacking up overdue payments throughout the second quarter, several creditors have told Caixin.

Skshu Paint is not the only supplier to hold Evergrande's debt. Three Shenzhen-listed decoration and construction companies, Shenzhen Grandland Group Co. Ltd. (002482.SZ), Shenzhen Jianyi Decoration Group Co. Ltd. (002789.SZ), and Shenzhen Ruihe Construction Decoration Co. Ltd. (002620.SZ) have declared in their most recent half-year financial reports that Evergrande owes them between 89.4 million yuan and 335 million yuan.

In late July, a 20% share of a development company held by Evergrande’s main onshore unit was set to be frozen for three years by order of a local court in Hubei, as a result of a civil lawsuit between Evergrande units and a state-backed builder.

Another dispute with Guangfa Bank Co. Ltd. led to the freezing of a $20 million deposit held by Evergrande’s main onshore subsidiary.

In recent talks, the debt-ridden conglomerate is trying to make a deal to sell its Hong Kong headquarters and other buildings, as well as its property management units and stakes in electric-vehicle and property services. No final deal has been announced so far.

Shares of Evergrande Group on the Hong Kong stock exchange fell 7.75% to close at HK$3.57 on Tuesday.

Wang Jing contributed to this story.

Contact reporter Manyun Zou (manyunzou@caixin.com) and editor Heather Mowbray (heathermowbray@caixin.com)

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