Global stock markets are on high alert as China’s Evergrande Group faces a decisive week for its future.
China’s ultra-indebted real estate giant Evergrande has now agreed to pay $35.9 million in interest on a national bond. Nonetheless, he still owes another $83.5 million payment on an offshore bond.
The group has started reimbursing investors, from its wealth management business, through real estate. But Evergrande has failed to make payments to at least two major banks as the group struggles to raise funds to meet its obligations.
But what does Evergrande do?
In 1996, Chinese businessman Hui Ka Yan founded real estate giant Evergrande, formerly known as Hengda Group, in Guangzhou, southern China. Currently, Evergrande Real Estate has more than 1,300 projects in more than 280 cities in China.
But the Evergrande Group is not limited to real estate development.
Its activities range from wealth management to the manufacture of electric cars, including the production of food and beverages. It even owns one of the biggest football teams in the country, FC Guangzhou.
Mr Hui was once Asia’s richest person and although he has seen his fortunes plummet in recent months, he still has a personal fortune of more than $10 billion, according to Forbes.
Why is Evergrande in trouble?
Evergrande has grown aggressively to become one of China’s largest companies and most importantly by borrowing over $300 billion.
Last year, Beijing introduced new rules to control how much debt large property developers have. These new measures have led Evergrande to have to offer its properties at significant discounts to ensure that the money comes in to keep the business afloat.
Today, the company is struggling to meet the interest payments on its colossal debts. And it is this uncertainty that has caused Evergrande’s share price to fall about 80% this year. Its bonds were also downgraded by global rating agencies.
Why would it be a shock in the event of bankruptcy?
For several reasons, Evergrande’s problems matter.
First of all, many people bought real estate from the Chinese developer, even before construction began. They have made down payments and could potentially lose that money if the business were declared bankrupt.
There are also companies that work with Evergrande. These companies, including construction and design companies, not to mention material suppliers, stand to suffer significant losses in the event of Evergrande’s bankruptcy, which could even force them to file for bankruptcy as well.
The third is the potential impact such a fall could have on the Chinese financial system. “The financial fallout would be considerable. Evergrande is indebted to around 171 national banks and 121 other financial companies,” Mattie Bekink, from the Economist Intelligence Unit (EIU), told the BBC.
If Evergrande defaults, banks and other lenders may be forced to revise their credit terms. This could lead to what is known as a credit crunch, when businesses find it difficult to borrow money at affordable rates.
A credit crunch would be very bad news for the world’s second-largest economy as businesses, which cannot borrow, struggle to grow and, in some cases, cannot continue operating.
It could also discourage foreign investors, who may see China as a less attractive place to put their money.
Is Evergrande “too big” to fail?
The very serious potential fallout from the collapse of a highly indebted company has led some analysts to suggest that Beijing could step in to save it. That’s what the EIU’s Mattie Bekink thinks: “Rather than risk disrupting supply chains and angering the many owners, we believe the government will likely find a way to ensure the survival of the core business of Evergrande.”
Others, however, are not sure.
In a message, posted on the online social-messaging app WeChat, Hu Xijin, editor-in-chief of the state-backed Global Times newspaper, said Evergrande should not rely on a government bailout. government and had to save himself instead.
The statement is also part of Beijing’s aim to limit corporate debt, which means such a dramatic bailout could be seen as a bad example.
(source: BBC – translation)
China’s ultra-indebted real estate giant Evergrande has now agreed to pay $35.9 million in interest on a national bond. Nevertheless, it is still liable for another payment of $83.5 million on an offshore bond. The group has started reimbursing investors, from its wealth management business, through real estate. But Evergrande failed to make payments to at least two major banks as the group scrambles to raise funds to meet its obligations. So what is Evergrande doing? In 1996, Chinese businessman Hui Ka Yan founded real estate giant Evergrande, formerly known as Hengda Group, in Guangzhou, southern China. Currently, Evergrande Real Estate has more than 1,300 projects in more than 280 cities in China. But Evergrande Group is not limited to real estate development. production of food and beverages. It even owns one of the biggest football teams in the country, FC Guangzhou. Hui was once the richest person in Asia and although he has seen his fortunes plummet in recent months, he still has a personal fortune of more than $10 billion, according to Forbes. Why Evergrande is- it in trouble? Evergrande has grown aggressively to become one of China’s biggest companies and most importantly by borrowing more than $300 billion. Last year, Beijing introduced new rules to control the amount of the indebtedness of major property developers. These new measures have led Evergrande to have to offer its properties at deep discounts to ensure that the money comes in to keep the business afloat. Today, the company is struggling to cope with the payment of interest on his colossal debts. And it is this uncertainty that has caused Evergrande’s share price to fall about 80% this year. Its bonds have also been downgraded by global rating agencies. Why would it be a shock in the event of bankruptcy? For several reasons, Evergrande’s problems are significant. First, many people have bought real estate to the Chinese promoter, even before the start of construction work. They have made down payments and could potentially lose that money if the company were to declare bankruptcy. There are also the companies that work with Evergrande. These companies, including construction and design companies, not to mention material suppliers, stand to suffer significant losses in the event of Evergrande’s bankruptcy, which could even force them to file for bankruptcy as well. potential impact such a fall could have on the Chinese financial system. “The financial fallout would be considerable. Evergrande is indebted to around 171 national banks and 121 other financial firms,” Mattie Bekink of the Economist Intelligence Unit (EIU) told the BBC. banks and other lenders could be forced to revise their credit conditions. This could lead to what is known as a credit crunch, when businesses find it difficult to borrow money at affordable rates. A credit crunch would be very bad news for the world’s second-largest economy, as businesses , which can’t borrow, struggle to grow, and in some cases can’t continue in business. It could also discourage foreign investors, who might see China as a less attractive place to put their money. Evergrande Is it “too big” to fail? The potentially serious fallout from the collapse of a highly indebted company has led some analysts to suggest that Beijing could step in to save it. That’s what the EIU’s Mattie Bekink thinks: “Rather than risk disrupting supply chains and angering the many owners, we believe the government will likely find a way to ensure the survival of the ‘Evergrande’s core business.’Others, however, are not sure. state-backed, said Evergrande should not rely on a government bailout and should instead save itself. businesses, meaning such a dramatic bailout could be seen as a bad example. (source: BBC)
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