Is The Evergrande Crisis Over?
BlackBull Markets | Mar 08, 2022 05:48PM ET
The looming collapse of China Evergrande Group (HK:3333), the world’s most indebted property developer, has roiled financial markets for months, threatening a contagion with far-reaching implications on China and the wider economy.
In the early months since Evergrande’s financial crisis came to light, Beijing stayed mum on the issue, although the People’s Bank of China pumped billions of yuan in liquidity in what was seen as an attempt to quell liquidity concerns.
Over this time, Evergrande’s stock price slipped 95%, from ~25HKD to ~1.5HKD, where it has stagnated for all of 2022.
Evergrande, once China’s second-largest real estate developer, is drowning in more than $300 billion in debts to suppliers, contractors, creditors and investors. The company’s crisis partly stemmed from the introduction of Beijing’s "three red lines" rule in 2020 that made it harder for developers to seek bank financing to fund their projects.
h2 Another Lehman Brothers moment/h2The large exposure of Chinese banks like China Minsheng Banking (HK:1988), Ping An Bank (SZ:000001), and China Everbright Bank (HK:6818) to Evergrande prompted many financial watchers to predict that Evergrande's debt crisis could extend beyond China’s property and financial markets, warning that it could spill over to the global markets similar to the Lehman Brothers collapse that resulted in the 2008 global financial crisis.
These fears intensified as Evergrande missed payments on a number of onshore bonds. The world’s three major credit rating agencies have already declared the developer to be in default after missing on its bond interest payments late last year.
However, some analysts have played down concerns of Evergrande being the next government work report unveiled by Premier Li Keqiang over the weekend. Li said authorities will seek to promote the commercial housing market and stabilize house prices this year.
Foreign investors that purchase bonds and other securities from Chinese builders should closely monitor developments surrounding Beijing’s policies for the sector.
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