China Opens $44 Billion Fund to Rescue Real Estate Sector, Including Evergrande

The heavily indebted Chinese real estate company Evergrande is expected to present a preliminary plan this week to restructure its $300 billion debt. At the same time, news from Beijing indicates that the state is taking the first step to rescue the entire crisis-stricken real estate sector.

According to Reuters, China plans to launch a real estate fund to support more than a dozen entrepreneurs, including Evergrande, which could be worth up to 300 billion yuan ($44.5 billion). This move aims to restore investor confidence in the construction industry, marking the first significant step by the state to rescue the entire sector, which has been speculated about for months.

Evergrande has not repaid all its debts since the end of last year, and in October of last year, a deal to sell a majority stake to a competing company worth $2.6 billion also fell through.

Evergrande’s shares fell by more than 75 percent over the past year and have been suspended from trading on the Hong Kong Stock Exchange for months. All these uncertainties have frightened investors, who have feared that instability would spill over into the entire Chinese real estate sector, which ultimately happened.

It is estimated that the Chinese property crisis wiped out more than a trillion dollars in value from the real estate sector last year. Today, the Japanese financial holding company Nomura reports that since the Evergrande crisis, ‘an increasing number of real estate companies have failed to repay their debts and continue construction work.’ According to data from the Shanghai research and development institution E-house China, this involves at least 80 real estate companies and more than 200 construction projects.

At the same time, official data shows that real estate sales in China have been declining for 11 consecutive months, the longest decline since China created a private real estate market in the late 1990s.

CEOs Resign

However, in addition to Evergrande facing deadlines for repaying these debts, two of its executives have resigned. According to the BBC, CEO Xia Haijun and CFO Pan Darong submitted their resignations after an internal investigation revealed that they misappropriated around 2 billion dollars in loans.

In Evergrande’s report to the Hong Kong Stock Exchange, it is stated that Haijun and Darong resigned due to their ‘involvement in a pledge agreement.’ In a separate statement, it is noted that the funds were ‘transferred and redirected back to the group through third parties and were used for the group’s general operations.’