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Evergrande fails to pay interest on bond: Potential collapse of China's real estate giant

2021-09-25T03:16:12.289Z

The worries about a collapse of the real estate company China Evergrande remain. The company let a widely publicized loan interest payment period pass without comment. Evergrande shares then collapsed again.



Enlarge image

Evergrande construction project in Zhumadian:

Many Chinese have loaned Evergrande money directly and are now afraid for their savings

Photo: JADE GAO / AFP

The second largest real estate developer in China has more than $ 300 billion in debt. Experts fear that a collapse will have serious consequences for the Chinese financial system. A deadline for paying bond interest had passed on Thursday. Evergrande had previously stated that it might pay off creditors in the form of real estate.

The Chinese central bank again pumped money into the banking system to calm the nervous financial markets.

However, the government has so far not provided any official information on possible state aid for Evergrande that investors are hoping for.

The "Wall Street Journal" reported on Thursday, citing insiders, that the authorities in Beijing had asked the local government to prepare for a possible collapse of Evergrande.

The group itself has hired financial advisors to work out a restructuring.

Debt financed growth

Evergrande has financed its growth with debt for the past few years and is now in arrears with banks, bondholders, customers and employees. Several rating agencies downgraded the creditworthiness, stocks and bonds went into free fall. Social problems could also arise. 200,000 people work at Evergrande, and several million workers are hired for construction projects every year. In addition, many small investors have invested money in Evergrande financial products.

The Evergrande management promised to primarily want to pay out money to these investors.

Interest on a domestic bond was paid last.

Evergrande has not yet commented on the interest of $ 83.5 million on an overseas bond due Thursday and another $ 47.5 million in interest that would have to be paid next week.

A 30-day grace period now begins for Evergrande, after which it would officially be in default.

ECB boss Lagarde: European banks have only limited commitments

ECB President Christine Lagarde does not see any major consequences for the European financial system as a result of the crisis at the highly indebted real estate group China Evergrande. The problems are currently centered on China, Lagarde said in an interview published by CNBC on Friday. "For Europe, I can say that direct engagement is limited." The European Central Bank (ECB) is looking at the situation and watching it, said Lagarde. "The financial markets are interconnected and I have vivid memories of recent stock market developments in China that had an impact on the world."

The head of the US Federal Reserve, Jerome Powell, had recently stated that the possible impact on US companies from Evergrande's debt problems was limited.

In contrast, the Swiss central bank warned the SNB against playing down the situation and viewing it as a local problem in China.

Bafin sees no danger for German banks

Enlarge image

CEO in need:

Evergrande boss

Hui Ka Yan

wants to pay out wealth management products to investors.

But worries about a possible collapse of the group remain

Photo: STR / AFP

The financial supervisory authority Bafin sees no reason for an in-depth examination of German banks because of the crisis of the Chinese real estate giant Evergrande. "In the present case, the Bafin currently estimates the exposure of the German financial sector on the basis of the information available to it from the supervisory reporting system to be so low that it has not yet requested a stress test in this regard from the institutions under its supervision," says an on Thursday published the response of the Federal Ministry of Finance to a request from FDP member of the Bundestag Reginald Hanke.

The essence of such a test would be to clarify how great the risk would be that banks would have to cope with loan defaults if the Evergrande crisis worsened.

The Federal Financial Supervisory Authority (Bafin) is keeping "the situation due to the dynamic development around the Evergrande Group in view of possible effects on the German financial sector," said the ministry.

Around $ 300 billion in debt

Evergrande is the second largest real estate developer in China. The badly ailing real estate company has debts of the equivalent of more than 300 billion dollars. Investors fear a default. The corporation has to raise money to pay banks, suppliers and bondholders on time. In addition, Evergrande owes retail investors, including many employees, billions of dollars. The company is so big that some experts fear a "risk of contagion" for the Chinese economy and beyond.

The fact that the company has still not provided any information on another offshore bond traded in US dollars caused continued uncertainty.

According to calculations by the financial service Bloomberg, Evergrande had to make an interest payment of 83.5 million US dollars (around 71 million euros) on Thursday.

Another interest payment of $ 47.5 million is due on September 29th.

According to Bloomberg, there is a grace period of 30 days for both payments, which could give Evergrande more time.

Second largest shareholder wants to sell the entire stake

Meanwhile, other shareholders are leaving the supposedly sinking ship. Chinese Estates Holdings has announced that it will sell its entire stake in Evergrande. The second largest shareholder in the troubled group announced that it had already sold shares worth $ 32 million and was planning to completely part with the holding company. The sale mandate is valid for twelve months from the date of a shareholders' meeting on September 23 to approve the sale, the company announced on the Hong Kong Stock Exchange.

Chinese Estates said they had sold 108.91 million shares, or 0.82 percent of the issued share capital of Evergrande, for Hong Kong dollars 246.5 million (US $ 32 million) between August 30 and September 21.

The company estimates that on the sale of its entire stake it will suffer a loss of approximately $ 1.22 billion in 2021.

The boss of Evergrande had encouraged employees in a letter on Tuesday.

He is firmly convinced that one can overcome the "darkest moment", wrote CEO

Hui Ka Yan

(62).

You will show yourself responsible towards home buyers, investors, partners and financial institutions.

mg / dpa-afx, Reuters

Source: spiegel

All news articles on 2021-09-25

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