China Evergrande Group is deep in the red – worth $ 300 billion. And concerns are mounting that it could cause a disaster for China’s real estate market if it does not pay its debts and send shockwaves through the second largest economy in the world.
A calculation appears even closer on Wednesday after Bloomberg News, referring to people who know the case, reported that the developer of the property may not be able to pay interest on some of his $ 300 billion debt next week and also a principal payment can be missed on at least one of its loans.
This is the latest development in the real estate saga, which is being closely watched in China and around the world.
Evergrande is currently the most guilty real estate developer in the world. The central question is whether the Chinese authorities intend to inflict huge losses on Evergrande’s creditors, and whether the country’s communist government, which praises stability and control, will somehow intervene to prevent a messy default and the damaging to avoid ripple effects it can cause.
Here’s what you need to know about Evergrande and the impact that the current financial situation could have on China and the world economy.
Start at the beginning. How long has Evergrande been busy?
Evergrande was established in 1996 in the Chinese province of Guangzhou by Hui Ka Yan.
Hui graduated from college in 1982 and worked in a steel mill before founding Evergrande, according to Forbes, which has a current net worth of $ 11.4 billion, making him the 53rd richest person on his list of billionaires in 2021 and the tenth richest. on his China Rich List. 2020.
The 62-year-old is currently the chairman of Evergrande.
How many projects does the company currently have?
Evergrande currently has 1,300 real estate projects in 280 cities in China, according to its website.
It has also expanded to other industries, including production of electric vehicles, property management, film and TV, construction of amusement park, life insurance, a hospital, a football club and the production of food, mineral water and baby formulas.
Wow. And how big are the other efforts?
The company’s property management company, Evergrande Property Services, has approximately 2,800 projects in 310 cities in China, covering a total contract area of more than 680 million square meters, according to the firm’s website.
And its Evergrande New Energy Vehicle has set the ambitious goal of developing 14 models for electric vehicles, ranging from sedans to sports utility vehicles and producing and selling five million of them per year by 2025 and five million by 2035.
The company’s media industry, Hengten Networks, includes a streaming platform known as Pumpkin Film, which says it has 20.1 million paid subscribers by the end of May, and a film and TV production company called Ruyi Film.
Evergrande also boasts a sports team, Guangzhou Evergrande FC, which is one of the most famous football clubs in China. But it’s not a money maker: the business is estimated to lose $ 155m to $ 310m annually on its football-related businesses, Bloomberg Intelligence analysts Dan Wang and Daniel Fan wrote in a recent report.
Got this. So how many problems is Evergrande in?
About $ 300 billion of that, according to the liabilities listed by the company, and Evergrande’s inability to pay the interest and principal amounts of its loans on time, has worried investors inside and outside China.
It also sparked protests among homebuyers, investors and even staff members who showed up outside the Evergrande office to demand that company officials meet with them.
Yikes. What does Evergrande say?
It looks like things are going from bad to worse.
In a statement (PDFOn Tuesday, company officials said they expect contract sales to continue to decline this month, “causing cash collection to continue to deteriorate, which in turn will put tremendous pressure on the group’s cash flow and liquidity”.
What did Evergrande do to try to prevent the crisis?
The firm has hired financial advisers Houlihan Lokey and Admiralty Harbor Capital to assist “in assessing the capital structure of the group, evaluating the liquidity of the group and exploring all feasible solutions to alleviate the current liquidity issue and provide an optimal solution for all stakeholders as soon as possible to achieve, “the council said. his statement Tuesday.
But other measures to raise cash have so far failed. Evergrande said the sale of its 18,580-square-foot, massive office tower in Hong Kong, China’s Evergrande Center, “was not completed within the expected schedule.”
And so far he has not been able to sell part of his interests in the electric vehicle and property management, Evergrande New Energy Vehicle Group Limited and Evergrande Property Services Group Limited.
How do investors react?
Nervous. Evergrande’s shares have fallen 81% since the beginning of the year, and its dollar bonds have fallen to record lows.
Moody’s Investors Service downgraded Evergrande and its subsidiaries on September 7, citing a negative outlook. Fitch Ratings took the same step and the company’s rating and write that it ‘considers’ some standard ‘as probable’.
So, what will happen next?
This is the billion dollar demand. Evergrande has about $ 84 billion in dollar-denominated interest due on September 23, Bloomberg News reports.
But the firm’s board seems to be in favor of the worst.
“Given the problems, challenges and uncertainties to improve its liquidity, as mentioned above, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts,” the board said in its statement. .
“If the Group is unable to meet its guarantee obligation or to repay any debt when it is due or agrees with the relevant creditors on extension of such debt or alternative agreements, this could lead to cross-failure under the existing financing arrangements. of the Group and relevant creditors who are demanding acceleration of repayment, ”they added.
And what about the Chinese government?
All eyes are also on the Chinese government to see if it will intervene and help Evergrande out of the crisis. Authorities in Guangdong have already rejected at least one rescue request from the company’s founder, Bloomberg News reported.
But making Evergrande fail could have ripple effects in China, leading to financial turmoil and civil unrest, two things President Xi Jinping and his risk-averse government are keen to avoid.