China’s Evergrande: On a brink of collapse

20 Sep 2021 CW Team

The troubles ailing the company have already sparked social anger among investors and homebuyers and increased risks for country's huge financial system. The anxious apartment buyers barged into the sales office of the Evergrande Oasis complex, asking for answers after construction was halted by the large developer's critical cash crunch. The local police were helpless and tried controlling the crowd with the help of pepper spray but could not do much. Across China, there have been similar protests in different offices of Evergrande. As we are facing pandemic situations across the world, this would be the beginning of a financial pandemic, leading to global financial crises.

How did the crisis begin? Evergrande is China’s biggest real estate developer, with more than 1,300 projects in over 280 cities on the mainland. Nearly a decade ago, the company bought the Guangzhou Evergrande soccer team and has the world's biggest soccer school at $185 million. The company is also working on building a lotus-flower-shaped soccer stadium for $1.7 billion. Moreover, the company also jumped into the electric vehicle business. As per the sources, they build around 600,000 homes every year, which is a massive number. To build these projects it borrows money. In the last ten years, the company’s debt has grown by 56 times. Now, the company has created a mountain of debt.

Evergrande is unlikely to repay the 572 billion yuan it owes banks and other bondholders. Beijing is likely to step in to prevent wider damage if Evergrande can't handle an orderly resolution of its debts, said financial rating agencies. As the developer falls further behind on promises to more than 70,000 investors, protests intensify at China Evergrande Group offices across the country. Credit-market pressure spreads from lower-rated property companies to stronger peers and banks. In the 15 months by June, global investors who purchased $527 billion of Chinese stocks and bonds started to sell.

The group went into a cash crunch after its borrowing to develop office towers, apartments, and shopping malls hit with pressure from the ruling Communist Party to reduce corporate debt loads that are observed as a threat to the economy.

The housing authority notified China's major banks that Evergrande Group won't be able to pay loan interest due September 20, indicating the broadening impact of the property developer's liquidity crisis.

This week, the Ministry of Housing and Urban-Rural Development held a meeting with the banks and added that the Group is still talking with banks about the chance of extending payments and rolling over some loans.

Last week, financial intelligence provider REDD said that Evergrande has told two banks it intended to suspend interest payment due later this month. Regulators have warned that it's $305 billion of liabilities could spark broader risks to China's financial system if not stabilised.

Work on the five-tower condominium and 16 blocks of apartments at the sprawling development in central China has been suspended since August and July, individually.

A part of the social media group of about 200 worried buyers at the Luoyang's Evergrande Oasis project, Tan Liangliang said that If Evergrande goes bankrupt, its assets could be frozen, and people will lose the home.

Since 2018, Beijing has made decreasing financial risk a priority. Authorities approved the first corporate bond default since the 1949 communist revolution in 2014. Defaults have slowly been approved to rise in hopes of forcing borrowers and investors to be more disciplined.

To spread China's wealth more broadly and narrow its politically volatile gap among the wealthy elite and the poor majority, President Xi Jinping is promoting a common prosperity objective. In Evergrande debt, regulators may support homebuyers at the expense of banks and other investors.

Image Source

Evergrande Group, one of China's biggest real estate developers, is struggling to avoid defaulting on more than $300 billion of debt, indicating concern about a broader economic fallout leading to a huge protest. The troubles ailing the company have already sparked social anger among investors and homebuyers and increased risks for country's huge financial system. The anxious apartment buyers barged into the sales office of the Evergrande Oasis complex, asking for answers after construction was halted by the large developer's critical cash crunch. The local police were helpless and tried controlling the crowd with the help of pepper spray but could not do much. Across China, there have been similar protests in different offices of Evergrande. As we are facing pandemic situations across the world, this would be the beginning of a financial pandemic, leading to global financial crises. How did the crisis begin? Evergrande is China’s biggest real estate developer, with more than 1,300 projects in over 280 cities on the mainland. Nearly a decade ago, the company bought the Guangzhou Evergrande soccer team and has the world's biggest soccer school at $185 million. The company is also working on building a lotus-flower-shaped soccer stadium for $1.7 billion. Moreover, the company also jumped into the electric vehicle business. As per the sources, they build around 600,000 homes every year, which is a massive number. To build these projects it borrows money. In the last ten years, the company’s debt has grown by 56 times. Now, the company has created a mountain of debt. Evergrande is unlikely to repay the 572 billion yuan it owes banks and other bondholders. Beijing is likely to step in to prevent wider damage if Evergrande can't handle an orderly resolution of its debts, said financial rating agencies. As the developer falls further behind on promises to more than 70,000 investors, protests intensify at China Evergrande Group offices across the country. Credit-market pressure spreads from lower-rated property companies to stronger peers and banks. In the 15 months by June, global investors who purchased $527 billion of Chinese stocks and bonds started to sell. The group went into a cash crunch after its borrowing to develop office towers, apartments, and shopping malls hit with pressure from the ruling Communist Party to reduce corporate debt loads that are observed as a threat to the economy. The housing authority notified China's major banks that Evergrande Group won't be able to pay loan interest due September 20, indicating the broadening impact of the property developer's liquidity crisis. This week, the Ministry of Housing and Urban-Rural Development held a meeting with the banks and added that the Group is still talking with banks about the chance of extending payments and rolling over some loans. Last week, financial intelligence provider REDD said that Evergrande has told two banks it intended to suspend interest payment due later this month. Regulators have warned that it's $305 billion of liabilities could spark broader risks to China's financial system if not stabilised. Work on the five-tower condominium and 16 blocks of apartments at the sprawling development in central China has been suspended since August and July, individually. A part of the social media group of about 200 worried buyers at the Luoyang's Evergrande Oasis project, Tan Liangliang said that If Evergrande goes bankrupt, its assets could be frozen, and people will lose the home. Since 2018, Beijing has made decreasing financial risk a priority. Authorities approved the first corporate bond default since the 1949 communist revolution in 2014. Defaults have slowly been approved to rise in hopes of forcing borrowers and investors to be more disciplined. To spread China's wealth more broadly and narrow its politically volatile gap among the wealthy elite and the poor majority, President Xi Jinping is promoting a common prosperity objective. In Evergrande debt, regulators may support homebuyers at the expense of banks and other investors. Image Source