Jakarta, CNBC Indonesia – This week, the world’s financial markets are buzzing with news of a potential default on the property giant from China, the Evergrande Group. The company is reportedly threatened with default of US$ 300 billion worth of around Rp 4,275 trillion.
The company’s cash flow is said to be currently under great pressure. In fact, the company recently stated that two of its subsidiaries had failed to meet the guarantee obligations for management products worth US$ 145 million or equivalent to Rp 2 trillion issued by third parties.
Teresa Kong, Head of Fixed Income (Fixed Income) Division of Matthews International Capital Management, LLC (Matthew Asia), said China Evergrande was suspected of having committed two major sins to its investors which resulted in the debt crisis.
First, China Evergrande is borrowing too much money, even this company is said to be the property company that has the most debt in the world.
Second, the company is suspected of having poor corporate governance. According to Refinitiv Eikon data, Evergrande has six bonds maturing next year and 10 bonds maturing in 2023, out of a total of 24 bonds that have been issued.
Its bonds are also included in various Asian high-yield indices. In this year alone Evergrande’s shares on the Hong Kong Exchange have fallen nearly 80% year on year.
Rating agency S&P has downgraded Evergrande’s debt rating from CC to CCC with a negative outlook.
Fitch, another rating agency, also lowered Evergrande’s rating from CC to CCC+. According to Fitch, Evergrande’s debt to banks and other financial institutions is CNY 572 billion.
In addition, the bank also provided loans to Evergrande suppliers worth CNY 667 billion. Banks with high exposure to Evergrande will be vulnerable to non-performing loans (NPLs). This is what will pose a systemic risk.
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