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debt crisis, bond default and investor risks


The Emerald Bay residential project developed by China Evergrande in the Tuen Mun district of the New Territories in Hong Kong, China, on Friday, July 23, 2021.

Lam Yik | Bloomberg | Getty Images

Chinese property giant Evergrande is on the brink of collapse, and analysts warn the potential fallout could have far-reaching implications that spill outside China’s borders.

“Evergrande’s collapse would be the biggest test that China’s financial system has faced in years,” says Mark Williams, chief Asia economist at Capital Economics.

Here’s how bad its problems are, and what’s in store for investors.

How did we get here?

Evergrande’s collapse would be the biggest test that China’s financial system has faced in years.

Mark Williams

Capital Economics, chief Asia economist

Banks have also responded to its deteriorating cash flow. Some in Hong Kong, including HSBC and Standard Chartered, have declined to extend new loans to buyers of two uncompleted Evergrande residential projects, said Reuters.

Ratings agencies have repeatedly downgraded the firm, citing its liquidity problems. Evergrande’s problems intensified last year when China introduced rules to rein in the borrowing costs of developers. Those measures place a cap on debt in relation to a firm’s cash flows, assets and capital levels.

Its share price plunged nearly 80% so far this year, and trading of its bonds was repeatedly halted by Chinese stock exchanges in the past weeks.

What does Evergrande do?

Evergrande is everywhere. Its main business is in real estate, and it’s China’s second-largest property developer by sales.

  • Evergrande owns more than 1,300 real estate projects in over 280 cities in China.
  • Its property services management arm is involved in nearly 2,800 projects across more than 310 cities in China.
  • The company has seven units dabbling in a wide range of industries, including electric vehicles, health-care services, consumer products, video and television production units and even a theme park.
  • The firm says it has 200,000 employees, but indirectly creates more than 3.8 million jobs every year, according to its website.
  • Evergrande’s shares and bonds are included in indexes across Asia.

Who will be affected?

The pool of affected parties include banks, suppliers, home-buyers and investors.

Evergrande warned this week its escalating troubles could lead to broader default risks.

It…



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debt crisis, bond default and investor risks

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