What Is Happening?
Evergrande is once again facing another crisis. This time, accumulating debt. With nearly $300 billion in liabilities spread among loans, bonds, "trust products", and money owed to suppliers and contractors, China's second-largest property developer embodied their unfettered age of borrowing and building. The crisis shows the rapidity with which corporate fortunes can crumble, as well as the underlying problems in China's growth model.
Real estate, an important component of the Chinese economy (15 - 20% of her GDP), and Evergrande being a significantly large firm in the Chinese economy - the impact of this potential collapse is vast and detrimental to many players, as well as to the second-largest economy in the world. And any impact on the Chinese economy will affect the rest of the world.
This has indefinitely shaken global markets. Experts say that China has to move swiftly to reorganize Evergrande since markets are growing apprehensive, which is harming sentiments. Evergrande is unlikely to trigger the next financial crisis, but it has increased market volatility.
Officials in China are likely to be involved in the repercussions of this crisis before it hits their financial system and spreads to international financial hubs. Many investors are concerned about how and when Officials will address the crisis, as well as whether or not Evergrande will be restructured, as many market experts predict.
It is speculated that Officials will seek to safeguard tens of thousands of Chinese individuals who have purchased unfinished flats, as well as construction workers, suppliers, and small investors, as well as reduce the danger of other real estate companies failing. Simultaneously, it has been attempting for at least a year to rein down developer overborrowing and will not want to dilute that message.
A regional financial news website, Asia Markets, claimed Thursday that the Chinese government was completing an agreement to reorganize Evergrande with the backing of state-owned businesses, stoking speculation about one option – an effective nationalization of the corporation (SOEs).
Banks have also reacted to the company's dwindling cash flow. According to Reuters, HSBC and Standard Chartered have declined to offer fresh loans to purchasers of two unfinished Hong Kong projects by Evergrande. Its share price dropped 80% and Chinese stock markets have regularly suspended trade of its bonds in recent weeks.
Many investors and creditors have been gathering at Evergrande's headquarters in Shen Zhen. Their anger only increased after Evergrande offered property and even parking spaces instead of cash payments.
Thus far, Chinese officials have moved in to restore trust, pouring billions of dollars into the country's financial system, among other things. Officials have been silent on whether they will actively bail out Evergrande while underlining that no Chinese business is too large to fail.
Evergrande owes an $83.5 million offshore interest payment due on Thursday, as well as a $47.5 million payment due the following week. They have stayed silent on Thursday's dues, which means it has entered a 30-day grace period, after which it will be in default if the debt is not settled. Bondholders are beginning to believe that things will clear up in a month or so, but are left in a state of uncertainty.
Evergrande subsidiary Hengda Real Estate Group has just told the Shenzhen Stock Exchange that it has successfully negotiated to pay interest on a bond due in 2025, according to Euronews. Furthermore, according to Bloomberg, Evergrande is ready to pay a 30.5 million euro interest payment on one of its own bonds. In the short term, this is fantastic news for Evergrande investors and the Chinese stock market in general as fears ease.
However, presently, the atmosphere over Evergrande is still filled with uncertainty.