According to insiders, the Chinese real estate company cannot pay the interest for the first time. The company had warned in advance that it would have difficulties with its financial obligations.
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Investors fear that the construction company will go bankrupt: The Evergrande Center in Shanghai.
Foto: Alex Plavevski (Keystone/22. Oktober 2021)
The situation at the heavily indebted Chinese housing company Evergrande is worsening. For the first time, according to insiders, the second largest real estate developer in China has broken a deadline for interest payments. Evergrande failed to meet its obligation to pay $ 82.5 million in interest on foreign bonds, as several people familiar with the matter told Reuters. Analysts assume that a possible collapse of Evergrande is manageable for the financial system.
The real estate company, which is more than 300 billion dollars in debt (around 277.25 billion Swiss francs), had already failed to meet regular payment deadlines several times, but had always paid shortly before the 30-day extension had expired. This deadline for the gallows had expired on Monday. Should the official default be determined, this would also affect other bonds and cause further failures.
In the financial market there is concern about a conflagration, Evergrande shares collapsed by 20 percent on Monday. Investors fear that the Chinese financial market could suffer as a result and that other large real estate groups would stumble. Some smaller construction companies had already withdrawn from the market in the past few months.
Evergrande had convened a risk committee to restructure the group. State officials should also be present, which experts interpret as government intervention and raise their hopes that bankruptcy can be controlled. In addition, the central bank flushed the equivalent of 188 billion dollars (about 174 billion Swiss francs) into the financial market through capital relief for banks.
Bankruptcy could hit millions of people
Portfolio manager Tracy Chen at asset manager Brandywine Global believes the effects of an Evergrande bankruptcy are manageable. “I think systemic risk is very unlikely and regulators have done a good job of turning this into something called a ‘limited detonation’,” said Chen.
Liqian Ren, director at asset manager WisdomTree, also expects low contagion effects. “Something like that only happens when you don’t know who owns what,” she said. A default by Evergrande would more closely resemble the case of the HNA Group, whose restructuring plan was approved by creditors in October. In addition, the market has simply got used to the difficulties at Evergrande and is no longer so surprised if there is a default, said analyst Himanshu Porwal from Seaport Global.
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The government also wants to prevent social problems if Evergrande collapses. The company operates and develops 1,300 real estate projects across the country, many of which are still ongoing. A total of 200,000 people are employed there and almost four million people are hired for construction work every year.
