Chinese cities seize Evergrande presales to block potential misuse of funds

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At least two local governments in China have taken control of sales revenue from Evergrande properties, even as Beijing remained silent about the unfolding liquidity crisis at the world’s most indebted developer and investors braced for more missed bond payments

In a circular issued on Wednesday and seen by the Financial Times, the Nansha District housing and urban-rural construction bureau in the southern city of Guangzhou asked an Evergrande subsidiary to put presale revenue from Sunshine Peninsula, a stalled residential development, into a state-controlled custodial account so that “homebuyers’ interest can be protected and project construction continues”.

Another district housing bureau in Zhuhai, a southern city neighbouring Macau, asked an Evergrande residential project this month to transfer sale proceeds into a government account, according to people with knowledge of the matter.

The moves marked an escalating effort to curb the impact of Evergrande’s debt crisis, which rocked global financial markets last week and has sparked protests from suppliers and investors, who fear they will not be repaid in the event of a default. The developer has struggled to access credit in the wake of Beijing’s crackdown on spiralling property sector leverage amid a post-pandemic housing bubble.

Fears of wider contagion deepened after investors in an Evergrande offshore bond did not receive an interest payment ahead of a closely watched deadline last week.

Evergrande, which has not made a statement on the $83.5m coupon, has a 30-day grace period before triggering a default.

As many as eight other provinces have made requests since August for Evergrande to place presales revenue into custodial accounts as the cash-strapped developer put hundreds of unfinished projects on hold, according to Caixin, a Chinese financial magazine.

“It is common for Chinese developers to allocate sales proceeds earmarked for particular projects for other uses, ranging from debt payments to land purchases,” said Bo Zhuang, a Singapore-based economist at Loomis Sayles, an asset manager. “That is no longer an option,” he added.

Evergrande did not respond to a request for comment on Sunday. 

The project delays and construction suspensions clouded expectations of what could become China’s biggest-ever corporate debt restructuring. Evergrande faces a total of Rmb1.97tn ($305bn) of liabilities, including $20bn of outstanding debt on offshore markets.

As of earlier this month, progress had stalled at hundreds of Evergrande’s ongoing projects across China, most of which have been fully sold, according to people close to the company. The suspended developments have prompted a flood of online complaints as well as public protests by anxious homebuyers and retail investors.

“I have spent my life savings on the apartment,” said a Guangzhou resident surnamed Zhu who bought a two-bedroom flat at Sunshine Peninsula for Rmb2.1m ($325,000). “My life will be ruined if the project can’t be finished.”

Zhu added that his…