Why Is Everyone Talking About Evergrande?
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Contributors: Alex Millson and Sofia Horta E Costa
Updated on September 21, 6:51 PM EDT
What You Need To Know
Evergrande is the biggest financial worry in China right now, and it’s fast becoming a problem outside of the nation’s borders. In a nutshell, the giant real estate developer is $300 billion in debt and widely expected to default on bond payments. The group owns 1,300 projects in more than 280 cities. But its reach goes way beyond building homes. Its billionaire owner Hui Ka Yan has his fingers in pies from electric vehicles, to media production, to mineral water and soccer.
The company’s woes started in 2020, when Evergrande reportedly sent a letter to the provincial government of Guangdong, warning officials of a potential liquidity crisis. Evergrande later disputed the letter’s authenticity and eventually crisis was averted when a group of investors waived their right to force a $13 billion repayment. But there’s plenty of debt still coming due and ratings agencies see default on the cards.
So what could save Evergrande from its downward spiral? In short, Beijing. And now investors around the world are holding their collective breath to see whether the government will step in and offer a bailout, or demand a restructure of the company. Or whether it will let fate run its course and risk Evergrande’s collapse and all the chaos that could bring.
Key Coverage
By The Numbers
- 2 trillion yuanThe amount Evergrande has in assets, equivalent to 2% of China's GDP, according to Goldman Sachs.
- 3 red linesMetrics the government says developers have to meet if they want to borrow more.
- 1.4 millionThe number of individual properties Evergrande was committed to building as of the end of June.
Why It Matters
Bondholders, stock investors and rating agencies predict an Evergrande default and say a debt restructuring is almost inevitable. Shockwaves are already being felt across global stock markets, triggering losses even in companies with no clear link to China or property. But authorities in Beijing are expected to engineer a resolution, rather than allow a chaotic collapse into bankruptcy.
The state runs most of the banks and can exert pressure on creditors, suppliers and other counterparties, keeping systemic risk to a minimum. While Evergrande investors would recover only a small portion of their money, the company’s operations would remain protected and unfinished properties would be delivered to their owners.
An uncontrolled downward spiral, on the other hand, could prove catastrophic for China’s economy, one of the major engines of global growth. Aggressive controls to curb outbreaks of Covid-19 are already hurting retail spending and travel in China, while measures to cool home prices are taking a toll. A correction in China’s property market, which comprises 28% of China’s economy and 40% of household assets, poses a risk to social stability.
In a worst-case scenario, Evergrande-related stress spreads across the world’s financial system and freezes the global credit market. That would be China’s Lehman moment, risking a repeat of the global financial crisis and dragging the global economy down with it. Think a real estate crash, surging unemployment, lower wages and protracted economic recessions. China has a lot of tools to prevent that, of course, and much of Wall Street believes Beijing will use them if necessary.
Bloomberg
Evergrande Gives China an Impossible Equation to Solve
The developer’s biggest problem is that its working capital is tied to a massive inventory, largely composed of unfinished projects. Empty parking lots, anyone?
Shuli Ren
Timeline
- 3 hours agoChina Stock Traders Relieved as Evergrande Coupon Plan SurprisesSeptember 22, 2021, 12:15 AM EDT
- 4 hours agoChina Injects $18.6 Billion Into Banking System During Evergrande CrisisSeptember 21, 2021, 10:57 PM EDT
- 18 hours agoDalio Says Evergrande ‘Manageable’ Even as Investors StungSeptember 21, 2021, 9:24 AM EDT
- 22 hours agoWall Street’s Message on Evergrande: China Has It Under ControlSeptember 21, 2021, 4:56 AM EDT
- 23 hours agoBillionaire Banker Kotak Calls Evergrande China’s Lehman MomentSeptember 21, 2021, 4:29 AM EDT
- 1 day agoEvergrande Default Likely Without Direct Support, S&P SaysSeptember 21, 2021, 12:32 AM EDT
- 1 day agoWhat Is China Evergrande and Why Is It In Trouble?September 21, 2021, 12:21 AM EDT
- 1 day agoInvestors Needed a Catalyst to Shatter This Market CalmSeptember 21, 2021, 12:07 AM EDT
- 1 day agoEvergrande Meltdown Ensnares Stocks With Very Little China LinksSeptember 20, 2021, 9:49 PM EDT
- 1 day agoMarket Contagion Tests Xi’s Resolve on Evergrande, Property CurbsSeptember 20, 2021, 6:34 PM EDT
- 1 day agoChina Needs a Lehman-Level Meltdown to Crash Its Steel MillsSeptember 20, 2021, 6:00 PM EDT
- 2 days agoCredit Contagion Fears Over Evergrande May Be 'Overdone': Morgan Stanley's TirupatturSeptember 20, 2021, 9:39 AM EDT
- 2 days agoChina Property Fear Spreads Beyond Evergrande, Roiling MarketsSeptember 20, 2021, 4:29 AM EDT
- 5 days agoAn Evergrande Restructuring Would Prompt Bondholder JostlingSeptember 17, 2021, 12:04 AM EDT
- 5 days agoChina’s Evergrande to Let Angry Investors Bid on Discounted PropertiesSeptember 16, 2021, 9:58 PM EDT
- 6 days agoChina’s Nightmare Evergrande Scenario Is an Uncontrolled CrashSeptember 16, 2021, 12:00 PM EDT
- 6 days agoChina Warns Banks Evergrande Won’t Make Interest PaymentsSeptember 15, 2021, 9:46 PM EDT
- 7 days agoEvergrande Gives China an Impossible Equation to SolveSeptember 15, 2021, 3:02 AM EDT
- 8 days agoChinese Soccer Teams Set to Be Bailed Out as Evergrande FlailsSeptember 14, 2021, 7:09 AM EDT
- 8 days agoEvergrande Hires Financial Advisers to Assess Capital StructureSeptember 13, 2021, 10:57 PM EDT
- 9 days agoEvergrande Crisis Escalates as Protests Break Out in ChinaSeptember 13, 2021, 8:29 AM EDT
- 11 days agoEvergrande Chairman Pledges Repayment of Wealth Products: RTHKSeptember 10, 2021, 9:37 PM EDT
- 12 days agoAngry Evergrande Homebuyers Protest Against Construction HaltSeptember 10, 2021, 4:46 AM EDT
- 16 days agoClock Ticks for Evergrande as $7.4 Billion of Bonds Due 2022September 5, 2021, 9:43 PM EDT
- 22 days agoEvergrande Flags Default Risk From Cash Crunch; Bonds FallAugust 31, 2021, 7:36 AM EDT
- 23 days agoRich Friends Who Helped Evergrande Tycoon Count Their LossesAugust 29, 2021, 9:49 PM EDT
- 26 days agoEvergrande Fire Sale Just Getting StartedAugust 26, 2021, 10:53 PM EDT
- 27 days agoEvergrande Issues Profit WarningAugust 25, 2021, 10:26 PM EDT
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