China Evergrande (OTC: EGRNF) found itself in hot water recently when a leaked memo revealed that that large developer may not be able to repay its short-term debt that accumulated to 400 billion yuan in June.
Some of the debt was acquired as the company bought land and different development projects during the pandemic.
The memo states that Evergrande asked the government “for accelerated approval to float subsidiary Hengda Real Estate via a reverse merger,” according to Reuters.
Without the approval, Evergrande could miss a January listing deadline and owe 144 billion yuan in payments to backers.
Evergrande has denied the allegations in the memo and called the memo a fake.
The major creditors to the company recently appeared with Evergrande founder Hui Ka Yan during a signing ceremony and pledged to convert $15 billion in cash payments that were owed into unlisted equity stakes.
At least one creditor, state-owned Shandong High Speed Group, has refused to accept that proposal.
S&P Global Ratings recently downgraded the company from “stable” to “negative,” citing its growing debt and liquidity problems that the company has ignored.
Evergrande is far from the only Chinese property developer piling up the debt. There are billions in junk bonds issued last year from Chinese developers, who simultaneously face serious cash crunches.
It’s gotten so bad that the Chinese government is expected to propose new rules on developers that cap debt ratios in relation to assets and cash. Without this type of action, developers in China would be defaulting on payments, which would cause financial distress.