China tells Evergrande to prioritise paying workers, suppliers

[GUANGDONG] China Evergrande Group is prioritising payments to migrant workers and suppliers as regulators urge the cash-strapped developer to head off any risk of social unrest, according to people familiar with the matter.

Authorities are particularly focused on making sure payrolls are met before the Chinese New Year holidays starting Feb 1, when thousands of migrant construction workers are due to reunite with their families, the sources said, asking not to be named discussing private conversations. Evergrande had 163,119 employees as at June 30 and indirectly supports the livelihoods of many more through its vendors.

Paying workers before China's most important holiday will be the top priority - not just for Evergrande but also for scores of other struggling developers, given the premium Xi Jinping's government puts on social stability. About 52 million migrant workers earn their living in the construction sector, according to calculations based on official data. Most will join an annual ritual of family reunion that centres around the new year celebrations, making what is often their only trip home each year.

The instructions to Evergrande underscore the government's deep involvement in decision-making at the company, with the Communist Party's priorities likely to supersede those of banks, bondholders and shareholders. The People's Bank of China and Guangdong government have said they will work to dissolve risks related to Evergrande, protect homebuyers and ensure social stability.

Officials from Guangdong, where Evergrande is based, and company executives are reaching out to other local authorities to discuss how salary payments can be made, said one of the sources. Where the escrow accounts of projects have sufficient funds, the government will first release the wages of migrant workers and then clear suppliers' bills, the sources said.

In projects that are not fully funded, a number of options are being discussed including using unsold apartments to cover the dues, or returning the land-sale proceeds of undeveloped land to pay off suppliers and workers.

Along with workers, Beijing is prioritising the interests of about 1.5 million homebuyers waiting for delivery of their apartments. Local governments have been authorised to take charge of Evergrande's incomplete sites to ensure homebuyers get the apartments they paid for, the sources said.

Provincial officials are being asked to complete projects where funds are available, and seek out partners - other developers or state-owned enterprises - where there is a shortfall.

BLOOMBERG