The last major financial crisis of 2008 started with problems in the US mortgage markets and the subsequent bankruptcy of the financial institution Lehman Brothers. And at a time when the world is once again floating in record debt, investors and analysts are now vying to predict who could be the flame that could potentially “ignite” a new debt crisis.
This time, however, it can start from a slightly less visible at first glance place. It’s about China …
A decade ago, perhaps no one would have predicted that China could be such an important market that what is happening there could turn into a global financial crisis. But today, when China’s economy is so advanced and important to the world economy and the country contributes a major part of the production of key raw materials and products, no one doubts the importance of the world’s second largest economy.
There is one company that stands out from everyone in terms of obligations. China’s most indebted entrepreneur, Evergrande Group, is struggling to resolve its debt crisis as there are growing signs that politicians are intervening to avoid a difficult “landing” for a company that is considered too big to fail.
The $ 300 billion debt giant that has become a ticking bomb for China’s economy
The company, which for decades has been a symbol of China’s rapid growth
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Here is a chronology of events leading to Evergrande’s debt problems and what the fundraising company has done so far:
August 2017
Evergrande promises to reduce its debt for the first time, aiming to reduce the net debt ratio to 70% by June 2020 from 240% in June 2017.
November 2018
In the report, the central bank named Evergrande as one of the few conglomerates of financial holdings that it believes could cause systemic risk.
March 2020
Evergrande aims to reduce its debt by 150 billion yuan ($ 23.3 billion) a year over three years.
August 2020
Regulators are meeting with 12 major entrepreneurs, including Evergrande, in Beijing to introduce ceilings for three different debt ratios in a pilot scheme called the “three red lines.” Evergrande sold 28% of its property management unit for $ 3 billion in a pre-IPO deal.
In a letter to the Guangdong government, the company pledged to approve a listing plan in Shenzhen, which has been “frozen” for four years, warning that it would face a monetary crisis that could lead to systemic risks. September 2020 The company offers a 30% discount on real estate for one month to stimulate sales.
October 2020
Evergrande raised $ 555 million from a reduced sale of secondary shares in Hong Kong.
November 2020
The company terminated the listing plan in Shenzhen and entered into an agreement with some strategic investors not to demand repayment of their debts. The Hong Kong IPO of Evergrande Property Services Group is raising $ 1.8 billion.
January 2021
Evergrande’s electricity division, China Evergrande New Energy Vehicle, raised $ 3.4 billion, attracting six new investors. In March 2021, Evergrande sold 10% of its online real estate and car market to Fangchebao to 17 investors for $ 2.10 billion in a pre-IPO deal. Evergrande aims to reach all three debt ratio ceilings by the end of 2022. and sets out a plan to list Fangchebao by early next year and separate other units, including that for spring water and tourism.
June 2021
Evergrande says it will sell more than half of its 58% stake in its younger counterpart Calxon, worth $ 386 million. Fitch downgraded Evergrande to “B” from “B +” with a negative outlook. The entrepreneur settled Hong Kong $ 13.6 billion ($ 1.75 billion) to pay maturing bonds and interest on all other dollar bonds and said there would be no additional bonds due before next March. Evergrande reaches one of the upper limits of the debt ratio by regulators, reducing its interest-bearing debt to about 570 billion yuan from 716.5 billion yuan six months earlier.
July 2021
A court ordered the freezing of a 132m-yuan bank deposit held by Evergrande at the request of China Guangfa Bank Co. Some Hong Kong banks are refusing to provide new loans to buyers of two of Evergrande’s unfinished housing projects. Evergrande cancels a special dividend offer. S&P downgrades the company by two levels to B- from B + with a negative outlook. Fitch downgraded Evergrande to “CCC +” from “B”.
August 2021
Evergrande has agreed to sell shares in its internet unit HengTen Networks Group Ltd worth a total of Hong Kong $ 3.25 billion. Moody’s downgraded Evergrande’s corporate family rating (CFR) by two notches to “Caa1” from “B2”. Legal sources say that lawsuits against Evergrande across the country will be heard centrally by the Guangzhou Intermediate People’s Court. S&P downgraded Evergrande again by two notches to “CCC” from “B-“.
The company says it is in talks to sell certain assets, including stakes in Evergrande New Energy Vehicle and Evergrande Property Services. State media reported that construction work had been halted on two Evergrande projects in Kunming, one for late payments and the other scheduled for delivery to home buyers in October. Hui Ka Yang resigns as chairman of the leading unit of Hengda Real Estate Group. China’s central bank and banking observer have called on Evergrande’s top executives and issued a rare warning that the company must reduce its debt risks and prioritize stability.
Evergrande is committed to doing everything possible to resolve its debt issues and will work to maintain the stability of the real estate market. Evergrande warns of liquidity and default risks if it fails to resume construction, dispose of more assets and renew loans, as it reports a 29% drop in net profit, including non-controlling interests, to 10.5 billion yuan.
September 2021
President Hui Ka Yang, along with the leaders of eight task forces set up to guarantee home delivery, are leading a ceremony to sign a promise to buyers that they will complete the construction of their homes.
China Chengxin International Credit Rating Co. (CCXI) downgraded Evergrande and its land bonds to “AA” from “AAA”, deleting the value of repo bets. Moody’s downgraded China Evergrande’s corporate family rating (CFR) to “Ca” from “Caa1” with a negative outlook. Fitch downgraded Evergrande to “CC” from “CCC +”, signaling a “probable” default. Evergrande wants an extension of interest payments on creditors’ credit, including the CITIC Trust.
The media reported that Evergrande will suspend interest payments on loans to two banks later in September, as well as payments on its wealth management products. President Hui promised in a forum to pay for all wealth management products as soon as possible. Some videos shared on Chinese social media show so-called Evergrande protests elsewhere in China. Evergrande says online speculation about bankruptcy and restructuring is “completely untrue”, but adds that it faces “unprecedented difficulties”. Evergrande says it has hired financial advisers to explore its financial capabilities and has warned of risks of insolvency amid reduced property sales …
How the whole saga will end and whether Evergrande could be the flame to ignite a wave of corporate bankruptcies, this time in China, spanning the globe, remains to be seen in the coming months and years.
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A Chinese real estate giant valued at nearly $ 100 billion has fallen into a debt crisis
Dissatisfied investors besieged Evergrande’s headquarters as the company said the sale of assets would not cover debts
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