PlusMarkets Analysis • 12/10/2021
The Evergrande Group is one of the most well-known property developers in China. The group is currently under scrutiny for its large amount of debt, as it is wrestling with more than $300 billion in liabilities.
The developer is set to hit a series of deadlines for bond interest payments, totaling tens of millions of dollars which will most likely be missed. Some bondholders said they did not receive coupon payments, totaling $148 million, on Evergrande’s April 2022, April 2023, and April 2024 notes. These were due on Tuesday, following two other payments that were also missed in September. The bonds were last trading at 21-22 cents on the dollar.
As a result of these developments Evergrande’s stock has shed nearly 85% of its value this year. Stocks in Hong Kong, New York and other major markets have been on edge by Evergrande’s debt and the slowdown in Chinese growth.
In 1996, Hui Ka Yan founded The Evergrande Group, formerly known as the Henga group in southern China. Mr Hui used to be one of Asia’s richest people with a personal fortune of $11.8bn according to Forbes. This has recently changed due to the debt issues the company is experiencing.
The business owns more than 1,300 projects in more than 280 cities across China. The Evergrande Group encompasses far more than just real estate development. Its businesses range from wealth management, electric cars production, food and drink manufacturing, and financing one of the country’s biggest football teams.
A lot of different people and businesses are at stake if the Evergrande Group collapses. Many people had bought property from the Evergrande group before build work had even began. These people have paid deposits and if the company goes bust, they could potentially lose all they invested in the properties.
A vast number of companies that do business with the Group could also be heavily affected by all this. These include firms such as construction, design firms, and material suppliers that could all incur huge losses and file for bankruptcy.
The collapse is likely to impact China’s financial system as well, as the property giant “reportedly owes money to around 171 domestic banks and 121 other financial firms,” according to the Economist Intelligence Unit’s (EIU) Mattie Bekink.
If Evergrande defaults, banks and other lenders might have to lend less out. This could also be unsettling to foreign investors who may want to invest in China in the future.
Evergrande has been on the spotlight globally for the past couple of weeks due to their missed dollar debt payments. This is becoming increasingly worrying as many will be at stake if the group goes into default. The company has started to repay some investors in its wealth management business with property until it can be settled otherwise.
Economist EIU’s Mattie Bekink thinks that the government “will probably find a way to ensure Evergrande’s core business survives” considering how many supply chains will be affected in the process. If there is a collapse it could harm China’s economy for a while.
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