Evergrande, the second largest real estate developer in China, issued a report at the end of last week that was less than pessimistic and suggests a looming financial crisis.
Evergrande, which was founded in 1996 and is headquartered in the southern city of Shenzhen near Hong Kong, is the second largest real estate company in China and one of the 100 largest real estate companies in the world. It has more than 200,000 employees and supports 3.8 million jobs in construction and other industries, with an estimated Its assets are about 2.3 trillion yuan (350 billion dollars).
Company founder Xu Jiayin was ranked as the richest man in China in 2017 with a fortune estimated at 43 billion US dollars. He reported that the company’s debt amounted to 310 billion dollars of debt owed to bond holders, banks, construction contractors and other creditors on June 30th.
The problem is that the company is scheduled to pay the equivalent of $83.5 million in interest related to the March 2022 bonds after tomorrow Thursday, and it also has another payment of $47.4 million due on September 29 for the March 2024 bonds. If the company fails to pay, the default phase will begin. We are witnessing a real estate crisis whose impact on the Chinese economy in particular and the world in general is similar to the crisis of the Long-Term Capital Management hedge fund, which is known for short as LTCM.
The hedge fund LTCM, run by Nobel Prize-winning economists and famous Wall Street traders, exploded in 1998 and declared a default, forcing the US government to intervene to prevent the financial markets from collapsing.
Evergrande Chairman Hui Ka Yuan, in a message to employees transmitted by Reuters to the media on Tuesday morning, announced that the company will come out of its darkest moments and present real estate projects as pledged and fulfill its obligations and responsibilities towards investors, companies and real estate buyers, while Hui Ka Yuan did not explain in detail how the company can achieve these goals.
. The Chinese government, so far, has not made any statements that it will intervene to save the company or not, despite the high concerns, while the report of the credit rating agency Standard & Poor’s Global Ratings showed that it is unlikely that the Chinese government will intervene to provide direct support to the company, according to a CNBC report. .
The real estate sector represents about 25% of the volume of GDP in China, and accordingly, the news of this backwardness and the signs of the emergence of a crisis in the second largest economy in the world were negative on all global markets after the VIX fear index rose to the 28 levels during yesterday’s session, its highest level since last May .
The company’s shares, listed on the Hong Kong Stock Exchange, closed the session down by about 0.44% at levels of $2.27, after a loss of about 7% during the session and declines of more than 10% yesterday, Monday.
06/11/2024
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