PBOC vows to protect consumers as China Evergrande falters

BEIJING / HONG KONG, Sept. 27 (Reuters) – China’s central bank on Monday pledged to protect consumers exposed to the housing market and pumped more liquidity into the banking system as the Shenzhen government began investigating the The wealth management unit of the struggling developer Evergrande, the clearest sign yet the authorities could act to contain the risks of contagion.

Once the epitome of an era of messy loans and construction in China, Evergrande (3333.HK) has now become the star child of a developer debt crackdown that has left investors big and small to sweat their exposure. .

In a letter to investors viewed by Reuters, the Shenzhen Financial Regulatory Bureau said that “relevant departments of the Shenzhen government have gathered the public’s opinions on Evergrande Wealth and are launching a full investigation into the related issues of the company.” Read more

It is also urging China Evergrande and Evergrande Wealth to work to reimburse investors, the letter said, which was sent following inquiries from investors.

The People’s Bank of China (PBOC) made no mention of Evergrande in a statement posted on its website, which only contained a line on housing as well as pledges to make its monetary policy flexible, targeted and appropriate. .

But at a tricky time for the world’s most indebted developer, who missed a bond interest payment last week and has another to pay this week, his pledge to “protect the legitimate rights of housing consumers” was making waves. hinting at the kind of response the markets had started hoping for.

With liabilities of $ 305 billion, Evergrande has raised fears that its problems will spill over into China’s financial system and reverberate around the world – a concern that has eased as the damage has so far concentrated in the real estate sector.

The far-reaching statement from the PBOC was released after the third quarter meeting of its monetary policy committee. Its housing line echoed comments from Evergrande’s management that emphasize containment efforts and prioritizing small investors in properties before foreign holders of Evergrande debt.

“We expect any impact to the banking system to be manageable and the government to focus instead on the social fallout from unfinished housing,” said Sheldon Chan, who manages T.’s Asia credit bond strategy. Rowe Price.

Vendors exposed to Evergrande debts and domestic bondholders would also have priority over dollar bondholders, he said.

Evergrande’s dollar bonds traded accordingly and remained at troubled levels of around 30 cents to the dollar on Monday.

Research firm Morningstar listed BlackRock, UBS, Ashmore Group (ASHM.L) and asset managers BlueBay as bondholders with exposure to Evergrande in a Friday report that said funds from HSBC and TCW had closed positions. Read more

Ashmore, BlackRock, BlueBay, HSBC, TCW and UBS declined to comment.

Evergrande stock rose 8%, although at HK $ 2.55 it is not far from last week’s low of HK $ 2.06 and stock borrowing costs have increased as short sellers accumulate.

Shares of Evergrande’s electric car unit (0708.HK) fell sharply after warning of an uncertain future. Read more

Work on a soccer stadium Evergrande is building in Guangzhou is proceeding smoothly, the company said on Monday. Read more

The focus now is on whether a $ 47.5 million coupon payment due Wednesday is made, and then on China’s ability to contain the economic damage if Evergrande collapses.

Its so far difficulties in paying suppliers and selling assets have already started to shake homebuyers’ confidence and force price cuts across the industry, signaling that consolidation – at the very least – is looming. for the real estate sector. Read more

“The potential Evergrande credit event, in our opinion, is part of a ‘survival of the fittest’ test in China’s real estate industry,” Deutsche Bank strategist Linan Liu said in a note to clients.

“Allowing the orderly exits of the weaker players in the real estate sector, while painful, is necessary to improve the overall leverage conditions in the sector and bring about a soft landing. “

Reporting by Ryan Woo in Beijing, Anne Marie Roantree in Hong Kong and Tom Westbrook in Singapore Writing by Tom Westbrook Editing by Stephen Coates, Mark Potter and Nick Zieminski

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