...

Evergrande: Embattled China property giant sparks economy fears




  • In Business
  • 2021-09-20 08:36:16Z
  • By BBC
Evergrande is currently building a new stadium for its football team, Guangzhou FC
Evergrande is currently building a new stadium for its football team, Guangzhou FC  

Chinese company Evergrande has started to repay investors in its wealth management business with property, as the world's most indebted real estate developer faces a key test this week.

Major banks have reportedly been told that they won't receive interest payments on loans that are due Monday, while interest payments of $84m (£61m) on the firm's bonds are also due on Thursday.

The company's shares fell by more than 10% in Hong Kong trade on Monday.

The property giant's deepening debt problems have triggered fears over the impact its potential collapse could have on China's economy.

Why is Evergrande in trouble?

Evergrande grew to be one of China's biggest companies by borrowing more than $300bn (£217bn).

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 85% 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.

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 has a personal fortune of around $10.6bn, according to Forbes.

Reporting by Peter Hoskins and Katie Silver

You may also be interested in:

COMMENTS

More Related News

Analysis-China
Analysis-China's silence on yuan's swift gains keeps markets buzzing

As China's yuan climbs rapidly to its strongest levels in six years against the currencies of the country's trading partners, a notable absence of concern...

Evergrande shares fall 10% as trading resumes in Hong Kong
Evergrande shares fall 10% as trading resumes in Hong Kong

Shares of the Chinese property giant fell 10% on Thursday morning in Hong Kong.

Isolated and unpaid, Mongolian coal drivers queue at Chinese border
Isolated and unpaid, Mongolian coal drivers queue at Chinese border

Snaking across the barren Mongolian desert, a convoy crawls along the once-busy highway to the Chinese border -- its truckers desperate to finally deliver...

Evergrande shares plunge on market return as deal falls through
Evergrande shares plunge on market return as deal falls through

Chinese property giant Evergrande's shares plunged Thursday after resuming trading in Hong Kong, with the failure of a unit sale deal deepening fears the...

Korea Early Exports Show Resilience in Face of China Slowdown
Korea Early Exports Show Resilience in Face of China Slowdown

(Bloomberg) -- Strong gains in South Korea's exports this month suggest global demand is holding up despite headwinds from supply chain snags and an energy...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business