China’s central bank on Friday said the fallout from the cash crunch at embattled real estate developer Evergrande is “controllable,” blaming the company’s issues on poor management, weeks after missed payments spooked global investors.
Authorities in Beijing and local governments in provinces around the country are resolving the situation based on “rule-of-law principles,” Zou Lan, head of the People’s Bank of China’s financial markets department, said in Mandarin at a news conference Friday.
He characterized Evergrande’s problems as “an individual phenomenon,” adding that the central bank has asked lenders to keep credit to the real estate sector “stable and orderly.”
Evergrande — which has amassed more debt than any other real estate developer in the world — has missed several payments to lenders in recent weeks, including a scheduled payment of $148 million on US Dollar-denominated bonds on Tuesday.
“In recent years, the company failed to manage its business well and to operate prudently amid changing market conditions,” Zou said Friday. “Instead, it blindly expanded and diversified.”
Evergrande accrued its sky-high debt after it used loans to fuel an aggressive expansion into a sprawling variety of industries, including theme parks, bottled water and electric vehicles over the past decade.
The real estate developer’s expansion “led to severe worsening of its financial metrics, and risks blew up in the end,” Zou said.
The company’s recent warnings that it may default on its $300 billion in liabilities have spooked markets globally as investors worry about the fallout spreading throughout China’s massive real estate sector and hitting international bondholders.
Skeptics of China’s financial markets have alleged that the risks posed by Evergrande are evidence of years of economic growth thinly supported by massive debt, and that the bubble could pop at any moment.
The potential contagion to the country’s financial markets sparked by Evergrande have prompted comparisons to the sudden collapse of Lehman Brothers 13 years ago in the US.
“There’s lots of Evergrandes out there in China — Evergrande just happens to be one of the biggest,” said Jim Chanos, a veteran short seller and longtime skeptic of China’s economic growth.
“But all the developers look like this. The whole Chinese property market is on stilts.”
Beijing has so far signaled an unwillingness to bail Evergrande out as the Chinese government continues to crack down on companies that have ran up debt over the years to fuel growth.
With Post wires