The collapse of the company could significantly damage the Chinese economy
Some analysts warn that the collapse of such a large and heavily indebted developer could have a major impact on the Chinese economy, which could spread to the global financial system. The extent to which the Chinese government will be involved in saving Evergrand is awaited.
“It’s too early to say whether it’s just a short break or a rescue plan,” said the BBC, Donald Low, director of the Institute for Emerging Markets Studies at Hong Kong University of Science and Technology.
And warning signs are already appearing. Evergrande’s second-largest shareholder, Chinese Estates Holdings, has announced that it has sold its stake in the company for $ 32 million and plans to withdraw from it altogether. According to Reuters, this follows from his statement to the Hong Kong Stock Exchange. As of September 10, Chinese Estates Holdings owned a 6.5 percent stake in Evergrand, according to Refinitiv Eikon.
According to official Chinese media reports on Thursday, the head of Evergrande said that the deeply indebted company would do everything to meet its obligations. On Wednesday evening, he convened 4,000 executives and urged them to devote “all their energy to restoring work, manufacturing and delivering real estate,” the China Securities Journal reported.
A problem for the public and other developers
Sinologist Olga Lomová reminded ČT that the company is not able to supply apartments to people who have already paid a deposit for them, nor to launch the projects it promised. “It’s a big blow to ordinary people who have invested their savings in the company’s projects in the hope that their savings will be valued.”
Cyrrus’s portfolio manager Tomáš Pfeiler then believes that the situation is still manageable now, but problems may arise in the future. It is the largest Chinese developer, highly indebted, its bonds were bought by foreign investors, Chinese banks and the Chinese public. In addition, other Chinese developers are making projects more expensive due to Evergrand’s problems and are at risk of ever following the fate of Evergrand.
“The company used a small amount of equity and a large amount of foreign capital,” according to Pfeiler, some investors pointed out this risk several years ago.
Lomová expects the Chinese government to have to do something about it, because it concerns a large part of the Chinese public. “Local protests have already begun to emerge, but the Chinese authorities have been able to quickly bring them under control.” He believes that many other companies could collapse during the domino effect. He also expects China’s economic growth to slow.
Pfeiler thinks that the Chinese government can also intervene, although this is not the preferred option. However, he considers some form of company restructuring to be inevitable. He reminded that if the company did not pay the installments from the bonds, it would get 30 days to rectify it. If she did not pay even then, she would enter the bankruptcy process.
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