The latest chapter in China Evergrande’s recent financial woes has rattled global markets as investors are now fearing the worst surrounding the potential impact on the wider-reaching economy of the world. There is a growing concern that the potential for China’s second-largest property developer to default on payments to its many lenders, suppliers, and investors would lead to a massive downturn in stock prices all over the world.
Unsurprisingly, shares in Evergrande have plummeted to their weakest level in 11 years on Monday, closing down 10.2% at HK$2.28
China Evergrande Crisis Rocks The World
Regulators and financial advisors have also warned that the company’s $305 billion worth of liabilities could spark a potential risk to the country’s financial system if its debts are not settled or stabilised.
Similarly, world shares have skidded following this news while the dollar stayed firmed as investors and analysts worry about the potential spillover risk to the global economy. In particular, US stocks were lower as the S&P 500 index went down nearly 2%.
Experts are watching Evergrande closely this week as it is due to pay $8.35 million in interest payments relating to its March 2022 bond and it also has another $47.5 million payment due to be paid on September 29th. If Evergrande fails to settle the interest within 30 days of either one of the scheduled payment dates, both bonds would then have defaulted automatically.And in any default scenario, Evergrande will likely have to restructure the bonds, safe for an unlikely bailout from Beijing.
Though, analyst reviews suggest that a good recovery ratio for investors is unlikely. Along with that, Evergrande’s troubles has also extended beyond the borders of the property sector, with many Hong Kong-listed shares of small-sized Chinese companies down. For instance, Chinese developer Sinic Holdings was down 87%, wiping off a massive $1.5 billion in its market value before trading was suspended.
Evergrande is now scrapping to salvage the business by starting to repay its investors in its wealth management products with real estate. However, experts have predicted that the Chinese developer’s stocks will only continue to plummet as there has not been a solution proposed to address the company’s liquidity issues. That being said, there were some who were confident that this dire situation could be contained as Beijing has demonstrated in the past that it would not hesitate to step in to stem widespread contagion when major financial or corporate entities fail.
As mentioned, investors are getting increasingly worried about the contagion risk which mainly concerns the debt-laden Chinese property market, which came under pressure along with the yuan on Monday.
Specifically, the yuan fell to a new three-week low of 6.4831 per dollar in offshore trade. Things are certainly not looking great for many Chinese property companies, with the aforementioned Sinic having seen massive selling pressure. The company also has nearly $700 million in offshore debts that will be maturing before June 2022. This debt also includes $246 million in bonds due in merely a month.
Similarly, other property stocks such as Sunac, China’s fourth-largest property developer, tumbled 10.5%. Whereas, state-backed Greentown China fell around 6.7%.Another property company, Guangzhou R&F Properties Co, in addressing the rising panic, said it was raising as much as $2.5 billion by loaning from major shareholders and selling a subsidiary in order to curb the oncoming economic fallout from the Evergrande crisis.