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Is Evergrande teetering on the brink?

Liabilities total $300bn as speculation grows about how the Chinese government will react to control any hint of contagion


Pete Carvill

Chinese property giant Evergrande has seen its credit downgraded twice in recent days as it struggles to reassure investors about its $300bn worth of debt.

According to the most recent statistics, shares in the company have lost 77.5% of their value since September 2020, with falls in the last month of 32.9%. After plunging to €0.38 per share earlier today, they improved minutely to €0.39.

Problems within Evergrande arise from its indebtedness, which The Guardian said was one of the highest in the world for companies. Yesterday morning, the Shenzhen stock exchange suspended trading in the company’s bonds after their prices fell 20%.

Football focus

According to The Guardian: “There were also reports from China on Wednesday of employees protesting outside the company’s offices about salaries not being paid. Evergrande claims to employ 200,000 people and indirectly generate 3.8 million jobs in China.”

The paper added: “The company has run up a mountain of liabilities totalling more than $300bn after years of borrowing to fund rapid growth and a string of real estate acquisitions as well as other assets including a Chinese football team. But the firm has struggled to service its debts and a crackdown on the property sector by Beijing has made it even harder to raise cash, fuelling concerns it will go bankrupt.”

Now, not later

Reported in The Independent was that at least two of the firm’s creditors have demanded immediate repayment of loans.

That paper reported: “Evergrande this week warned it risks defaulting on borrowings if its efforts to raise cash fall short. Despite selling stakes in prized assets and offering steep discounts to offload apartments, the developer reported a 29% slide in profit for the first half. Its property and electric-vehicle units posted losses, while some vendors have suspended work on projects due to unpaid bills.”

As bad as Evergrande’s problems are, the fears are that a collapse of the company may lead to contagion within China’s economy and the world at large.

Earlier today, the FT reported: “A default is likely to have spillover effects on global markets, where many investors have historically anticipated Chinese government support at times of distress.”