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Not an isolated case?
The troubled real estate giant Evergrande is sending shock waves across China's financial scene - and beyond
Photo: WU HONG / EPA
Concerns about the bankruptcy of the Chinese real estate giant Evergrande worried investors around the world and the financial markets into turmoil on Monday. The price drop on the Hong Kong stock exchange spread to the European markets, as investors fear that the liquidity crisis at Evergrande would spread to other industries: Dax and Eurostoxx 50 each fell by more than 2 percent in the late morning. The futures of the most important stock indices on New York's Wall Street were also listed deep red.
Shares in the crisis group plunged further into double digits in Hong Kong on Monday, closing at 2.23 Hong Kong dollars, their lowest level in ten years.
The title has lost around 80 percent since the beginning of the year.
"The stock is likely to continue falling because there doesn't seem to be a solution to the company's liquidity problems," said Kington Lin, managing director of asset management at brokerage firm Canfield.
In addition, it is unclear what a possible restructuring of China's second largest real estate developer could look like.
If the exchange rate falls below a Hong Kong dollar, he expects a breakup.
A government bailout in Beijing is unlikely.
China's Achilles heel: The real estate industry is built on credit
The real estate industry, which accounts for more than a quarter of China's economic activity, according to the Financial Times, has come under pressure to reduce its debt.
Shares in other real estate companies in China and Hong Kong were also hit by the wheels.
The Hang Seng Property Index, which tracks a dozen listed property developers, closed with a loss of almost 7 percent, its lowest level since 2016. The broader Hang Seng Index in Hong Kong fell by 3.5 percent.
"Evergrande is just the tip of the iceberg"
Louis Tse
, Managing Director at Wealthy Securities
"Evergrande is just the tip of the iceberg," said Louis Tse, managing director of Wealthy Securities, brokerage firm in Hong Kong.
Chinese developers are under considerable pressure to repay dollar-denominated bonds.
At the same time, Beijing is pushing public real estate companies to cut housing costs in mainland China and Hong Kong.
"That affects banks too - if house prices go down, what happens to their mortgages? It has a chain effect."
Yuan breaks in
How big investors rate the risk for China's economy is also shown by the foreign exchange market: The Chinese yuan slid to 6.4698 yuan per dollar on Monday, its lowest level in three weeks.
According to Reuters, traders justified the renewed minus with warnings from Chinese regulators that the Evergrande bankruptcy could trigger further risks for the country's financial system.
Evergrande has piled up a mountain of debt worth more than 300 billion US dollars.
At the weekend, the troubled group announced that it wanted to pay off investors in its wealth management products with real estate.
Investors who are interested in returning asset management products for material assets should contact their investment advisor or visit a local branch.
$ 130 million in interest is due this week
Meanwhile, according to insiders, some creditors are making provisions for loan losses while others are granting deadline extensions.
In the coming days, interest totaling around 130 million US dollars will be due for two Evergrande bonds alone with terms until 2022 and 2024.
However, a payment default only becomes official when Evergrande allows the grace period of 30 days to elapse.
Should it come to that, creditors could only count on repayment of a fraction of their debts in the event of debt rescheduling, warned stockbrokers.
The 8.25 percent dollar bond of March 2022 traded at 29,156 Monday afternoon, a yield of over 500 percent, compared to about 13.7 percent at the beginning of the year.
The 9.5 percent bond dated March 2024 was at 26.4, which is a yield of more than 80 percent, compared to 14.6 percent at the beginning of 2021.
The downward slide of the parent company also hit Evergrande holdings.
The real estate management division and the streaming subsidiary Hengten each lost more than ten percent.
It was a similarly steep
downhill run
for Evergrande rival
Sunac
.
Competitor
Greentown
got off comparatively lightly thanks to its state participation with a minus of 6.4 percent.
Evergrande crisis also weighs on raw material markets
The Evergrande crisis also resulted in a sell-off on the commodity markets.
The
copper price
headed
for the largest daily loss in three months, initially with a minus of almost three percent to 9053 dollars per ton.
"If Evergrande collapses, numerous real estate projects would be overturned," said commodity expert Malcolm Freeman from Kingdom Futures brokerage firm.
This would significantly dampen the demand for industrial metals.
Copper is used for power cables and water pipes, among other things.
The price of
iron ore
collapsed by 10 percent on Monday: Last week, iron ore prices had slumped by 20 percent and thus had the worst weekly performance since the financial crisis in 2008.
Against this background, the shares of mine operators fell on their knees.
The European industry index fell by more than four percent and was heading for the largest daily loss in half a year.
rei / dpa-afx / Reuters
