Evergrande's Deeper Crisis: Yet Another Missed Bond Payment Sends Shockwaves

Sign up for CNN's Meanwhile in China newsletter to stay updated on the country's rise and its global impact. Evergrande Group has now missed another bond payment, raising more uncertainty about the future of the troubled property developer at the center of China's real estate crisis.

Hengda Real Estate, the primary subsidiary of Evergrande in mainland China, acknowledged in a filing to the Shenzhen Stock Exchange that it failed to make principal and interest payments on a 4 billion yuan ($547 million) onshore bond on Monday. The default marked Evergrande's initial debt default in 2021, leading to an ongoing crisis that has a significant impact on China's expansive real estate industry.

Investors were rattled by the news of another missed payment, adding to their existing concerns about the property company's future. This comes after the company's warning on Sunday about its debt restructuring being jeopardized due to a regulatory investigation into Hengda. The revelation of a separate criminal probe into its shadow banking unit raised doubts about the property giant's ability to successfully complete the multi-billion-dollar debt restructuring, which is closely monitored by international investors.

It its heyday, Evergrande was China's second largest property developer.

AFP/Getty Images

Shares in Evergrande closed down 7% Tuesday, following a 22% plunge on Monday. Other developers dropped across the board. Sunac China sank more than 6%. Country Garden fell 4.2%.

Hong Kongs benchmark Hang Seng

(HSI) Index declined by 1.5%, closing at its lowest level in 10 months.

If Evergrande's restructuring is unsuccessful and it is unable to negotiate a new agreement with its offshore creditors, the company may be forced into liquidation. This would involve selling its assets and ceasing its operations.

The chaotic downfall of the company, once China's second largest developer, would have detrimental effects on the broader economy, which has long depended on the real estate market to drive growth.

The company logo is seen on the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China September 26, 2021.

Aly Song/Reuters

Evergrande's plan to stave off collapse is running into trouble

China's property industry used to make up as high as 30% of the country's gross domestic product. "Investors will carefully monitor China's property market to see if it can stabilize soon and its impact on global commodities demand and prices," said Tao Wang, UBS' Chief China Economist and Head of Asia Economics, in an interview with CNN.

Questions about financial stability

Stephen Innes, managing partner of SPI Asset Management, has highlighted renewed fears regarding China's economic stability due to the escalating financial crisis at Evergrande. He expressed concerns that this crisis indicates a continued decline in the country's housing sector, rather than any signs of improvement, and that there is an increasing risk to financial stability.

The first signs of trouble have emerged. Zhongrong Trust, a firm that had poured over $9 billion into the real estate industry for affluent individuals and corporate clients by the conclusion of 2022, failed to meet its payment obligations to investors in the previous month, triggering unusual demonstrations.

The incident highlights the potential impact of China's extended property downturn on its trillion-dollar financial sector. Additionally, concerns are growing about the adequacy of measures taken by Chinese authorities to bolster the overall economy, Innes noted.

A residential area of Country Garden in Nanjing, Jiangsu province, China, is seen in this photo taken on August 31, 2023. On August 30, Country Garden released its performance report for the first half of 2023. During this period, the company achieved a total revenue of 226.31 billion yuan, representing a significant increase of 39.4%. However, the core net loss attributable to shareholders amounted to approximately 45.35 billion yuan. (Photo credit should read CFOTO/Future Publishing via Getty Images)

CFOTO/Future Publishing/Getty Images

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Chinese authorities face a more intricate and delicate balancing act due to the shifting government priorities, which now include attaining tech self-sufficiency and ensuring financial stability, the speaker noted.

On Sunday, Evergrande shocked investors when it declared its incapability to issue new notes owing to the ongoing investigation into Hengda. The company stated that China's securities regulator initiated this probe last month in response to the subsidiary's alleged failure to disclose information to investors as required.

The announcement on Sunday followed Evergrande's recent cancellation of crucial meetings with creditors aimed at restructuring its offshore debt, which was attributed to underwhelming property sales over the past few months.

In a significant development earlier this month, Chinese authorities detained certain employees from Evergrande's wealth management division for failing to meet investor repayments. This marked the first criminal investigation initiated against Evergrande since the onset of its debt crisis almost two years ago.

Mengchen Zhang and Marc Stewart contributed reporting.