Evergrande set to officially default on Friday: 10 things to know

Highlights

  • The Evergrande crisis is only one of the many property developers facing challenges to service their debt obligations.
  • All eyes are still on the gigantic debt of US$305 billion that could stall the entire global financial system
  • China’s central bank has denied the possibility of a crisis, saying in a statement that the risks posed by Evergrande are controllable.

The debt-laden Chinese property developer, Evergrande, is apparently turning out be a massive time-bomb for China, with more property developers facing challenges to repay their debt.  Last week, Sinic Holdings warned it might not be able to pay its debt obligations due on Monday this week.

Property construction

Image Source: © Outcast85 | Megapixl.com

Last Friday, another real-estate player, China Properties Group, defaulted on its US$226 million worth of notes. But all eyes remain on Evergrande’s gigantic US$305 billion debt that could stall the entire global financial system, if not taken care of.

Evergrande has already been given a grace period of 30 days for its missed payment back in September 2021. As the clock ticks down, China’s debt crisis is only worsening. On that note, let us have a look at 10 things that an investor must know about this potential time bomb.

Read More: Evergrande founder's net worth takes a US$15.6 billion hit

  1. The Chinese property market accounts for about 25% of its gross domestic product (GDP), hence, making this potential default an alarming situation for the entire nation.
  2. Evergrande is China’s second largest property developer in terms of sales and clocked its first 100-billion-yuan revenue in 2013, while FY20 net profit was recorded at around US$5 billion.
  3. The company has a gigantic debt of US$305 billion which includes trade payables, deferred income tax liabilities, borrowings, etc. Some of its work has also been suspended due to failing to service its trade payables.
  4. As per a Chinese property consulting firm, over a dozen of players have joined this property fiasco, cumulatively defaulting over 47 billion yuan of bonds this year alone.
  5. Evergrande is now forced to sell its assets to raise capital. However, the beleaguered property developer’s negotiations to sell 51% stake in a property management unit has reportedly failed. Its deal to sell 26-storey waterfront headquarters in Hong Kong has also been reportedly put on hold.
  6. China’s central bank has denied the possibility of a crisis, saying in a statement that the risks posed by Evergrande are controllable.
  7. Global rating agencies are sniffing the potential risks and have started to downgrade property developers in China.
  8. S&P Global recently downgraded China Aoyuan, one of the biggest developers in the country, quoting “reduced visibility on revenue growth”. Fitch has downgraded Modern Land, citing “delay in servicing offshore bonds”
  9. Chinese junk bonds have seen a sharp rise as property firms, which lead the lower-rated notes sector, were hit by a series of downgrades from the credit rating agencies.
  10. The crisis has started to show its adverse impacts on the GDP of the country. GDP in Q3 grew 4.9%, slower that 7.9% in Q2 and a massive 18.3% in Q1.

Read More: Evergrande contagion spreads: Another Chinese developer defaults

 

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