The Evergrande Group or the Evergrande Real Estate Group (previously Hengda Group) is the second largest property developer in China by sales. It is ranked 122nd on the Fortune Global 500. It is incorporated in the Cayman Islands and headquartered in the Houhai Financial Center in Nanshan District, Shenzhen, Guangdong Province, China. It was founded in 1996 by Xu Jiayin. It sells apartments mostly to upper and middle-income dwellers. In 2018, it became the most valuable real estate company in the world.
In September 2021, Evergrande Group began experiencing a default crisis; various analysts have stated that the company is at risk of running out of money and being unable to pay all its debts, which in June 2021 were reported to total 2 trillion RMB (310 billion USD)
Global stock markets have been on high alert as China’s Evergrande faces a key test this week.
The world’s most indebted real estate developer has now struck a deal over a $35.9m (£26.3m) interest payment on a domestic bond. But it still owes another payment of $83.5m on an offshore bond.
The company has started to repay investors in its wealth management business with property.
But Evergrande has reportedly missed payments to at least two major banks as it struggles to raise funds to meet obligations.
What does Evergrande do?
Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China. Evergrande Real Estate currently owns more than 1,300 projects in more than 280 cities across China.
The broader Evergrande Group now encompasses far more than just real estate development.
Its businesses range from wealth management, making electric cars and food and drink manufacturing. It even owns one of country’s biggest football teams – Guangzhou FC.
Mr Hui was once Asia’s richest person and, despite seeing his wealth plummet in recent months, has a personal fortune of more than $10bn (£7.3bn), according to Forbes.
Why is Evergrande in trouble?
Evergrande expanded aggressively to become one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat. Now, it is struggling to meet the interest payments on its debts.
This uncertainty has seen Evergrande’s share price tumble by around 80% this year. Its bonds have also been downgraded by global credit ratings agencies.
Why would it matter if Evergrande collapses?
There are several reasons why Evergrande’s problems are serious. Firstly, many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.
There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.
The third is the potential impact on China’s financial system. “The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms,” the Economist Intelligence Unit’s (EIU) Mattie Bekink told the BBC.
If Evergrande defaults, banks and other lenders may be forced to lend less. This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates. A credit crunch would be very bad news for the world’s second largest economy, because companies that can’t borrow find it difficult to grow, and in some cases are unable to continue operating.
This may also unnerve foreign investors, who could see China as a less attractive place to put their money.
Is Evergrande ‘too big to fail’?
The very serious potential fallout of such a heavily-indebted company collapsing has led some analysts to suggest that Beijing may step in to rescue it.
The EIU’s Mattie Bekink thinks so: “Rather than risk disrupting supply chains and enraging homeowners, we think the government will probably find a way to ensure Evergrande’s core business survives.”
Others though are not sure. In a post on China’s chat app and social media platform WeChat, the influential editor-in-chief of state-backed Global Times newspaper Hu Xijin said Evergrande should not rely on a government bailout and instead needs to save itself.
This also chimes with Beijing’s aim to rein in corporate debt, which means that such a high profile bailout could be seen as setting a bad example.
Reporting by Peter Hoskins and Katie Silver.
Paul Krugman, So even if Evergrande is contained — hey, remember when people said that about subprime? — it may be the leading edge of bigger problems
posted by gandatmadi46@yahoo.com