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Evergrande on the Brink of Default

Evergrande On The Brink Of Default

The Evergrande Group is the second largest property developer in China. The property giant has recently been struggling to repay its debts, insinuating that it might default. The debt is held by financial institutions, retail investors, home buyers, contractors, and building-materials suppliers. That, coupled with the large sum of money it owes to its employees, has left Evergrande on the brink of default.

The company’s shares have recently been put on hold due as Evergrande was bracing itself for missing another debt repayment. This has created a widespread concern. Evergrande reported the equivalent of more than $300 billion in liabilities, including about $89 billion in interest-bearing debt. 

Leading Up to the Potential Default

Founded in 1996 by Xu Jiayi. The Evergrande Group owns more than 1,300 real estate projects in over 280 cities in China. Evergrande is one of the most valuable real estate companies in the world. The property giant not only invests in property but in a variety of other industries as well. Some of these industries include electric vehicles, health-care services, consumer products, video and television production units, and even a theme park.

Many well-known funds, including those of BlackRock, Allianz, and HSBC, have very high exposure to Evergrande bonds. They have funded the Evergrande Group in the past which in turn may have implications if the debt issues continue.

In October 2009, the company raised $722 million in an initial public offering on the Stock Exchange of Hong Kong (SEHK). Ten years on, the Evergrande Group is now in hundreds of billions of dollars in debt and going through a liquidity crisis.

What Are the Experts Saying?

Evergrande’s debt crisis has caused a huge concern in the business world. According to a Fitch analysis, banks are likely to have indirect exposure to Evergrande’s suppliers as the conglomerate’s trade payables stand at ¥667 billion. 

Dan Wang, an economist at Hang Seng bank, believes there will be “some supporting measures from the central government, or even the central bank, trying to bail out Evergrande.” 

Williams from Capital Economics goes on to say that “the most likely endgame is now a managed restructuring in which other developers take over Evergrande’s uncompleted projects in exchange for a share of its land bank”. 

Analysts predict this will put a big strain on China’s economy. The property sector, which accounts for 29% of GDP, has been serving as a powerful engine of China’s economic growth. 

Final Thoughts

Many people and businesses would be affected by Evergrande’s default. A lot of Chinese households, that bought properties from the developers off-plan, may also lose their deposits if the firm collapses

Evergrande’s potential demise has sent shockwaves across global markets amid signs that the government in Beijing may be prepared to see some failures in China’s massive property sector.  We need to hold tight and see how the story unfolds, hoping the Chinese business comes into an agreement with the government and with a plan to be put in place. 

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