Evergrande sued by China state-owned builder over $62m bill
China Evergrande Group has been sued by a state-owned construction company over nonpayment of 401 million yuan ($62 million), underscoring the liquidity crunch at the world's most indebted property developer.
Huaibei Mining Holdings, which is majority-owned by Anhui Province's state-owned Assets Supervision and Administration Commission, said on Thursday it had filed a lawsuit on July 26, claiming the outstanding bill and penalties from a unit of Evergrande. The companies entered into a construction contract in November 2018 and part of the bills were overdue despite reminders, Huaibei Mining said. Evergrande's unit Liuan Hengda Zhiye "refused to pay [the bills], citing they do not have the money," Huaibei Mining said in a statement filed with the Shanghai Stock Exchange. Evergrande's bill was the largest single uncollected account receivable last year for Huaibei Mining. The 401.26 million yuan claimed is about 12% of consolidated net profit for 2020. "This is a normal contract dispute and the company is currently taking legal action," said an Evergrande spokesperson late Thursday, without elaborating. The company abandoned plans on Tuesday to declare a special dividend after a backlash from investors and banks.
Evergrande, which has $301 billion in total liabilities as of the end of 2020, has been fending off concerns over its financial health since March last year. Worries about the fate of the company considered a bellwether for China's leveraged property sector have intensified this month after rating agencies cut their credit ratings, banks in Hong Kong and China clamped down, and a city in Hunan halted sales on projects. While Evergrande has not defaulted on any bonds, some of its units have missed payments on bills payable this year. The company had 158.8 billion yuan in cash and cash equivalents at the end of 2020, against 335.5 billion yuan of borrowing due over the following 12 months, according to its last annual report. It has met all bond repayments for the year but faces over $6 billion in offshore maturities in 2022, with most of it due in the first half.
While the company is asset-rich and can raise funds by listing units, selling stakes in subsidiaries such as property management and electric vehicles, and offloading land, its weak access to funding is leading to significant risks in its ability to "execute the debt reduction plan," S&P Global Ratings said on Monday as it cut its rating by two notches. "Evergrande's liquidity is fragile and heavily reliant on renewing short-term banking facilities and trust loans, continued access to trade payables and robust contracted sales to generate cash flow," Fitch Ratings said in a note after cutting its score to CCC+ from B-. Evergrande is closely tracked by regulators, investors and rating agencies concerned about the potential for contagion across China's $50 trillion financial system. Despite the group's claims to be making progress with debt reduction, outstanding liabilities grew last year, as a decrease in so-called interest-bearing liabilities such as bond and bank loans was more than offset by a rise in bills payable to suppliers.
Evergrande shares ended the morning session in Hong Kong 3.3% higher. Its shares touched a four-year low earlier this week and have slumped 41% so far this month. The company's bonds are trading at record low levels.
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