The world’s most indebted construction contractor is struggling to pay its suppliers
Chinese real estate giant Evergrande is on the verge of bankruptcy and analysts say its collapse could have far-reaching consequences, even beyond China’s borders, writes CNBC.
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“Evergrande’s bankruptcy would be the biggest test the Chinese financial system has faced for years,” said Mark Williams, chief economist for Asia at Capital Economics.
After years of rapid growth and asset growth during the boom of the Chinese economy, the company has now accumulated huge debts of $ 300 billion.
The world’s most indebted developer is struggling to pay its suppliers and has twice warned investors in two weeks that it could default on its debts.
Earlier this week, Evergrande predicted that after months of declining real estate sales are likely to continue to decline in September, which will exacerbate its problem with the inflow of funds.
The company is so large that the consequences of its eventual bankruptcy will affect not only the Chinese economy, but will spread to other markets.
Banks have also responded to declining cash flows, and some financial institutions in Hong Kong, including HSBC and Standard Chartered, have refused to provide new loans to property buyers in two unfinished Evergrande housing projects, Reuters reported. .
The rating agencies downgraded the company several times, citing its liquidity problems as the reason. Evergrande’s difficulties deepened last year when Chinese authorities introduced new rules for developers. These measures set a limit on the debt according to its ratio to the capital inflow, the assets and the capital levels of the respective company.
Evergrande shares have plummeted nearly 80 percent this year, and trading in its bonds has been halted several times by Chinese stock exchanges in recent weeks.
The company is the second largest construction contractor in China in sales with over 1,300 projects in more than 280 Chinese cities.
Its real estate management division participates in nearly 2,800 projects in over 310 cities across the country.
The group has seven divisions that deal with a wide range of activities, including electric cars, health services, consumer products, video and television productions, and even a theme park.
The concern has 200,000 employees, but indirectly creates more than 3.8 million jobs each year, according to the corporate website.
Its shares and bonds are listed on stock indices throughout Asia.
A possible collapse would affect banks, suppliers, home buyers and investors.
Analysts say the government is likely to intervene because of the importance of Evergrande.
“Evergrande is such an important construction contractor that if something happens to it, it will be a strong signal. I believe there will be some support from the central government or even the central bank in an attempt to save the company,” said Dan Wang, an economist. at Hang Seng Bank.
According to other analysts, restructuring is more likely to occur.
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