Evergrande supplier sues amid word of overdue bills, further slump in share price

Shanghai

TWO more companies said China Evergrande Group failed to pay its bills on time, adding to signs of a cash crunch at the world's most indebted developer.

Huaibei Mining Holdings filed a lawsuit against Evergrande in Anhui province, alleging a unit of the company missed payments, according to a filing to the Shanghai stock exchange. The company is demanding about 401 million yuan (S$84 million) for fees and breach of contract. Another company, Peace Tree Wood, said Evergrande missed payments on 2 million yuan of commercial bills.

Evergrande's suppliers are increasingly resorting to publicising their gripes with the developer to seek payments, a trend that may spark further investor concern about the company's financial health.

Equity and bond holders have been rattled in recent weeks by a slew of reports about wary banks and unpaid bills. Evergrande's credit rating was cut by S&P Global Ratings and Fitch in recent days.

"The spate of lawsuits over debt payments faced by Evergrande suggests that the company is now facing liquidity issues," said Chang Wei Liang, a macro strategist at DBS Bank in Singapore. "Not every creditor will be willing to go to court for now, but a flurry of lawsuits could trigger a scramble by creditors to protect their interest."

Evergrande didn't respond to e-mailed requests for comment. A unit of Huaibei Mining worked as a contractor for an Evergrande construction project in Anhui.

So far, the strategy of publicising disputes has been working. Shanghai-listed Skshu Paint said in a June 28 exchange filing that it held 51 million yuan in overdue Evergrande bills and that only 4 per cent was recovered by May 31. A day after Skshu made the filing, it said Evergrande repaid the bills.

Commercial bills have become a popular financing tool in China's real estate industry, which has become subject to a growing number of borrowing restrictions in recent years. Evergrande's main onshore subsidiary had about US$32 billion of commercial bills outstanding as of December, the most of any major Chinese real estate company.

Bills come in many different forms, often depending on the specifics of a developer's relationships with suppliers. In situations where the developer has a stronger bargaining position, it might agree to simply postpone immediate payment for a service without providing extra compensation.

Evergrande jumped 5 per cent in Hong Kong on Thursday, joining a rebound in Chinese equities after several days of sharp declines. The company's shares could drop another 40 per cent from Monday's closing price, UBS Group analysts said in a report. BLOOMBERG