Hong Kong: With the Future evergrande Hanging in the balance, global markets have collapsed on fears that one of China’s biggest developers could collapse and cause a contagion in the world’s number two economy and beyond.
one thing”Lehmann moment“This week has been louder as worried investors try to figure out whether the crisis could be a repeat of the bankruptcy of Wall Street titan Lehman Brothers during the 2008 global financial crisis.
While primarily a developer, Evergrande – which employs 200,000 people, is present in more than 280 cities and indirectly claims to have created 3.8 million Chinese jobs – has been on a shopping spree for more than a decade. .
In that time it bought Guangzhou FC and turned it into a hugely successful club, founded the popular Evergrande Spring Mineral Water and opened amusement parks that were “bigger” than Disney.
It also has an electric car unit as well as investments in tourism, digital operations, insurance and health.
Well, that spending spree was paid for by the founder zhu jiayinheavy borrowing. The firm is now in the hole for more than $300 billion — the equivalent of two percent of China’s GDP — and is having trouble paying back.
Debt pile-up became a major issue last year when the government, as part of a campaign to address a worrying debt mountain piling up by property firms, introduced a series of measures aimed at reining in their borrowings. began to unveil.
This has severely impaired the ability to liquidate assets and sell them to pay off their debts.
Banks have already given up hopes of repayment of loans given to the firm, but it is due to make payments on two bonds on Thursday.
It is not expected to meet those, and while it has a 30-day grace period, it is widely predicted to default.
All eyes are on the government. The property sector is an important engine of the Chinese economy – accounting for about a quarter of its GDP – and has played a key role in the post-pandemic recovery. Any bankruptcy of such a big company will have a big impact.
But, as a private company, Beijing may feel less compelled to stop Evergrande from hitting the buffers and force it to file for bankruptcy, to use it as a warning that any Even the firm is not big enough to fail and they cannot rely on the state to bail them out.
However, most experts agree that the state would not like to see Chinese home buyers out of pocket.
Larry Ongo SinoInsider said that a “best-case scenario” is that executives “find a way to prevent Evergrande from declaring bankruptcy, giving the company’s creditors a glimmer of hope that they’ll walk away with at least some debacle.” , and will stop triggering “more social unrest”.
Then there is the possibility with local authorities taking control of parts of the firm, while allowing the corporate investment divisions to go out of business.
But it will be a huge undertaking.
“I think it’s a cool defense, because they don’t even want to explicitly say: Hey, I’m actually here to put X amount of billions in your books to save you,” he said. Calvin Wong of CMC Markets.
“They don’t really want to create another moral hazard to the market, to say… ‘Go on, continue your business as normal of property development, at the end of the day, we’ll still save you’. ”
Notably, the group hired experts including Houlihan Loki – who advised the restructuring of Lehman Brothers after its collapse in September 2008.
apparently not.
Lehman Brothers was a Wall Street giant, one of the so-called Big Five investment banks. However, sinking under heavy losses associated with sub-prime mortgages, US officials allowed the firm to go down.
A banking crisis ensued and markets fell into disarray, while millions of jobs were lost and lives were ruined.
But analysts say the situation is different here.
“I don’t think it will be at that level, because I don’t see any securities products that have been secured from Evergrande’s books,” said CMC’s Wong.
“So what we can see right now is more than just a negative feedback loop effect, an emotion effect that really extends to the rest of the world.”
Rating agency S&P said in a report this week that officials are likely to act, but only if they think the crisis could pose wider risks.
“We believe that Beijing will be forced to act only if a far-reaching contagion causes several major developers to fail and poses systemic risks to the economy,” it said.
“Evergrande failing alone would be unlikely to result in such a scenario.”
one thing”Lehmann moment“This week has been louder as worried investors try to figure out whether the crisis could be a repeat of the bankruptcy of Wall Street titan Lehman Brothers during the 2008 global financial crisis.
While primarily a developer, Evergrande – which employs 200,000 people, is present in more than 280 cities and indirectly claims to have created 3.8 million Chinese jobs – has been on a shopping spree for more than a decade. .
In that time it bought Guangzhou FC and turned it into a hugely successful club, founded the popular Evergrande Spring Mineral Water and opened amusement parks that were “bigger” than Disney.
It also has an electric car unit as well as investments in tourism, digital operations, insurance and health.
Well, that spending spree was paid for by the founder zhu jiayinheavy borrowing. The firm is now in the hole for more than $300 billion — the equivalent of two percent of China’s GDP — and is having trouble paying back.
Debt pile-up became a major issue last year when the government, as part of a campaign to address a worrying debt mountain piling up by property firms, introduced a series of measures aimed at reining in their borrowings. began to unveil.
This has severely impaired the ability to liquidate assets and sell them to pay off their debts.
Banks have already given up hopes of repayment of loans given to the firm, but it is due to make payments on two bonds on Thursday.
It is not expected to meet those, and while it has a 30-day grace period, it is widely predicted to default.
All eyes are on the government. The property sector is an important engine of the Chinese economy – accounting for about a quarter of its GDP – and has played a key role in the post-pandemic recovery. Any bankruptcy of such a big company will have a big impact.
But, as a private company, Beijing may feel less compelled to stop Evergrande from hitting the buffers and force it to file for bankruptcy, to use it as a warning that any Even the firm is not big enough to fail and they cannot rely on the state to bail them out.
However, most experts agree that the state would not like to see Chinese home buyers out of pocket.
Larry Ongo SinoInsider said that a “best-case scenario” is that executives “find a way to prevent Evergrande from declaring bankruptcy, giving the company’s creditors a glimmer of hope that they’ll walk away with at least some debacle.” , and will stop triggering “more social unrest”.
Then there is the possibility with local authorities taking control of parts of the firm, while allowing the corporate investment divisions to go out of business.
But it will be a huge undertaking.
“I think it’s a cool defense, because they don’t even want to explicitly say: Hey, I’m actually here to put X amount of billions in your books to save you,” he said. Calvin Wong of CMC Markets.
“They don’t really want to create another moral hazard to the market, to say… ‘Go on, continue your business as normal of property development, at the end of the day, we’ll still save you’. ”
Notably, the group hired experts including Houlihan Loki – who advised the restructuring of Lehman Brothers after its collapse in September 2008.
apparently not.
Lehman Brothers was a Wall Street giant, one of the so-called Big Five investment banks. However, sinking under heavy losses associated with sub-prime mortgages, US officials allowed the firm to go down.
A banking crisis ensued and markets fell into disarray, while millions of jobs were lost and lives were ruined.
But analysts say the situation is different here.
“I don’t think it will be at that level, because I don’t see any securities products that have been secured from Evergrande’s books,” said CMC’s Wong.
“So what we can see right now is more than just a negative feedback loop effect, an emotion effect that really extends to the rest of the world.”
Rating agency S&P said in a report this week that officials are likely to act, but only if they think the crisis could pose wider risks.
“We believe that Beijing will be forced to act only if a far-reaching contagion causes several major developers to fail and poses systemic risks to the economy,” it said.
“Evergrande failing alone would be unlikely to result in such a scenario.”
.