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Asian developer Evergrande is sinking. $ 305bn in debt and equities down 11 years

Asian developer Evergrande is sinking. $ 305bn in debt and equities down 11 years

created Michał Sielski20 Września 2021

The developer-giant's share price on Monday Evergrande fell once again. It turned out that the colossus has long been standing on clay legs, and the foundations are rather quicksand. After leaks that the Chinese government did not intend to save the company, its shares are the cheapest in 19 years. No wonder - Evergrande has it already USD 305 billion in liabilities.

If someone thinks that Evergrande's troubles are just a curiosity from distant China, they may be wrong. The company is one of the litmus tests of not only the Asian but also the global economy. If it goes bankrupt, it will bring more companies to the bottom and we will have a really big domino effect, which will undoubtedly translate into the situation also in European stock exchanges, including Polish. Some analysts are even spreading that Evergrande's troubles may have had similar effects to the fall of the Lehmann Brotherswhich was the beginning of the financial crisis in 2008. Fear Index (VIX) he has already reacted and is now at most for 2 months, but if the "fire" is not extinguished quickly, it will only be the beginning of the increase in uncertainty.

vix index september 2021

Chart of the VIX index, interval D1. Source: xNUMX XTB.

Okay, but why should a developer fail?

Evergrande: to blame ... rating agencies

At the beginning, it is worth realizing that the current discount is not the result of falling out suddenly "Corpse from the closet"that no one expected. Earlier S&P Global Ratings changed the Evergrande ranking to CC, i.e. for companies approaching bankruptcy. Earlier, the agency did the same Fitch.

According to the developer, it was the lowering of the rankings that contributed to the decline in sellers' confidence, although September was excellent for other Chinese developers. Meanwhile, Evergrande has been recording further declines in sales for months. 

Its representatives will, therefore, most likely have to carry out a quick and deep restructuring, so they started working with consulting companies Houlihan Lokey and Admiralty Harbor Capital. For now, however, there are no details. 

The world's most indebted developer - $ 305 billion in debt

Much depends on the patience of the banks with which the company has lines of credit. According to Bloomberg, interest on loans due next week will not be paid off for the time being. The debt spiral is growing rapidly and Evergrande has already gained the reputation of the world's most indebted developer. 

The company's total liabilities now exceed $ 305 billion (more than 2 trillion yuan), and on September 23 it will have to pay off $ 84 million in interest on bonds with redemption in March 2022. Next week, USD 47,5 million of interest on bonds with redemption in March 2024 will be payable.

Evergrande shares down, their lowest since May 2010

Of course, the upcoming risks were immediately priced in by the stock exchange. Evergrande shares fell 20.09.2021% on Monday 19/2,06/2010, falling to HDK XNUMX apiece, their lowest valuation since May XNUMX. 

Interestingly, there are many indications that the Chinese government does not intend to (at least not yet) engage in rescuing the company. Although the People's Bank of China granted the company a quick and large liquidity loan in the coming days, it has no intention of supporting it indefinitely. There were even words that "Evergrande is not too big to fail"so it can be expected that the company will have to seek salvation in the open market. And private companies are not willing to risk excessively by supporting a shaky developer, so it is hard to expect that the company will be able to get out of financial problems. Rather, most analysts lean towards the bankruptcy version, which will result in a shock or even an earthquake in all financial markets.

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About the Author
Michał Sielski
Professional journalist for over 20 years. He worked, among others, in Gazeta Wyborcza, recently associated with the largest regional portal - He has been present on the financial market for 18 years, he started on the Warsaw Stock Exchange when the shares of PKN Orlen and TP SA were just being introduced to the market. Recently, his investment focus has been exclusively on the Forex market. Privately, he is a parachutist, a lover of Polish mountains and a Polish karate champion.