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2021-09-24 15:09:54


Fears of default of troubled China Evergrande Group, the world's most indebted property developer, continue to rise as markets look for possible intervention by Beijing to prevent the company’s collapse and the spillover risks that would cause domino effects across the global economy.


Evergrande is China’s largest developer which invests in real estate, bottled water, the internet, and football, which owes over $300 billion in liabilities to various creditors.


In efforts to lift confidence in the struggling firm, the Evergrande Group chairman said the company is confident that it will walk out of its darkest moment and deliver property projects as promised and will fulfill its obligations to property buyers, investors, partners, and financial institutions.


Economists remain divided over Evergrande’s troubles but so far played down the threat of possible Lehman scenario, though concerns about the spillover risks of a messy collapse of what was once China's top-selling property developer have shaken markets.


Investors in Evergrande remained on edge, as its shares were sold-off on Monday and Tuesday, falling 10% and 7% per day respectively that boosts fear its huge debt could trigger widespread losses in China's financial system in the event of a collapse. 


Rising uncertainty pushed sharply lower other property stocks such as Sunac, China's fourth-biggest property developer, and state-backed Greentown China, while S&P Global Ratings downgraded Sinic Holdings Co Ltd, citing the Chinese developer's failure to communicate a clear repayment plan, after which the Hong Kong-listed Sinic shares plunged 87%, wiping $1.5 billion off its market value before trading was suspended.

不确定性导致其他地产股大幅下跌,比如中国第四大房地产开发商融创(Sunac)和国家支持的中国绿城(Greentown China),而标准普尔环球评级(Global Ratings)下调了新力控股的评级,理由是这家中国开发商未能提供明确的还款计划。之后,在香港上市的新力股价暴跌87%,从停牌前的市值中蒸发了15亿美元。

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Broad selling pressure persisted across the Asian stock markets at the beginning of the week, as investors fled riskier assets on Evergrande contagion fears, while mainland China markets were closed for a holiday and Hong Kong markets were shut on Wednesday.   


The Chinese government has been largely quiet on the crisis at Evergrande, and there was no mention of the firm's troubles in major state media during a public holiday.


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A major test for Evergrande comes this week, with the firm due to pay $83.5 million in interest relating to its March 2022 bond. It has another $47.5 million payment due on September 29 for March 2024 notes, and both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.


The report back in 2012 showed that Evergrande has been scrambling at that time to raise funds to pay its many lenders, suppliers, and investors, was insolvent, and had defrauded investors.


Some economists think that Evergrande equity will be wiped out, as the debt is in trouble and the Chinese government would likely break up the company but remain optimistic regarding the potential negative impact on the global economy.


Other analysts expect that the Chinese government will help Evergrande to get some capital, but it may have to sell some stakes, starting with mainly non-core businesses that are not residential real estate, with the possibility of selling stakes that are the core of the company’s business at the later stage   


It looks like regulators may buy some time to digest Evergrande's non-performing loan problem by guiding banks not to withdraw credit and extend the interest payment deadline but remain aware of mounting investor concern about potential risk spillover from Evergrande's debt crunch.


In any default scenario, a troubled company, hovering between a messy meltdown, a managed collapse, or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.

违约情况下,无论是混乱无序的公司还是极小可能获取政府救助的公司,都需要债券重置,分析师预计, 投资者收益率会非常低。 

Evergrande said it will make a top priority to help retail investors redeem their investments, sold by the indebted company, as investors remain highly concerned about Evergrande’s mountain of debt boosted fears that the company’s collapse could pose a systematic risk to China’s financial system.