Beijing doesn't seem ready to come to the aid of real estate giant Evergrande.
The Chinese government has warned local governments of "the potential storm" if the financially troubled real estate group China Evergrande Group were to go bankrupt. Sources tell The Wall Street Journal (WSJ) on Thursday.
In particular, they are asked to curb protests and only buy over land after Evergrande has gone bust.
This suggests that Beijing has little desire to intervene at Evergrande and still keep the debt-laden concern afloat. Local governments are now talking to state-owned companies and private real estate investors about possibly taking over Evergrande's construction projects.
In addition, financial regulators have asked the company in a series of instructions to focus on selling unfinished projects and repaying investors. They are also asking Evergrande to avoid defaulting on payments and to be proactive in communicating with creditors.
The threat of bankruptcy for Evergrande, which is burdened with a debt load of the equivalent of 305 billion dollars, is keeping investors around the world on their toes. Growing concerns about the group are leading to a sell-off in Asian markets, underscoring how the crisis is spreading to other assets.
Investors are bracing themselves for a crucial payment deadline on Thursday. The company must pay $83.5 million (over €71 million) in interest on a $2 billion bond. A week later is the next payment deadline.
If the group defaults, it could trigger the largest debt restructuring in China's history. It would also represent the heaviest blow yet to a market that managed to entice international asset managers with lucrative returns. It happened at a time when global bond yields were at historic lows.
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