September
15, 2021
8:32 AM
CEST
Last
Updated a day ago
Finance
China tells banks Evergrande won't be able to pay
interest due Sept 20 - Bloomberg News
Reuters
Security
personnel form a human chain as they guard outside the Evergrande's
headquarters, where people gathered to demand repayment of loans and financial
products, in Shenzhen, Guangdong province, China September 13, 2021.
REUTERS/David Kirton/File Photo
Sept 15
(Reuters) - China's Ministry of Housing and Urban-Rural Development has told
major banks that Evergrande (3333.HK) will not be able to make loan interest
payments due Sept. 20, Bloomberg News reported on Wednesday, citing people familiar
with the matter.
Evergrande,
the country's No.2 property developer, is still in talks with banks on the
possibility of extending payments and rolling over some loans, Bloomberg
reported, adding that the housing ministry has convened a meeting with banks
this week.
Reporting
by Sarah Morland in Gdansk; Editing by Muralikumar Anantharaman
Chinese real estate giant on the brink of collapse. Crash
threatens if state does not intervene
The Chinese real estate firm Evergrande is on the upside.
Investors are seeing their profits evaporate. Chinese people who have put their
money into unseen owner-occupied homes are awake to the worries. Is this the
beginning of an unprecedented crash of the Chinese economy?
Marije Vlaskamp14 September 2021, 18:26
Evergrande, what
kind of company is that?
A real estate
giant that behaves like an economic omniiny. Football clubs, mineral water,
electric cars, healthcare, amusement parks: Evergrandefounder Xu
Jiajin, a former technician of a steelcompany, likes to invest a lot.
Xu likes a gamble
and profitability was unimportant in the bubble of ever-rising house prices.
Now there's $300 billion in the red in the accounts. No company in the world
has as much debt as Evergrande.
What's going
wrong?
Everything. Xu's
recent departure from the real estate division was yet another sign that Evergrande
is on the brink of collapse. Earlier, suppliers sounded the alarm
because Evergrande did not pay their
bills. If the company was previously short on cash, suppliers with short-term
debt statements or unfulpaed real estate were paid. That is no longer allowed
nowadays.
Due to
non-payment, construction projects came to a standstill, which makes it fear
that 1.4 million evergrandehomes with a total market value of 170 billion euros
will never be delivered. Therefore, no Chinese dares to put his money into a
down payment of an Evergrandeowner-occupied home, so the sale stagnates.
Evergrande is
trying to break that downward spiral by selling assets such as the electric
cars and office buildings division, but despite nice discounts, lenders are not
giving in.
Who will lose
out?
Homeowners are
seeing the square metre price plummet
and fear that their home, in which three generations have poured all their
savings, will decrease in value.
Chinese who
bought an Evergrandehouse under construction are terrified that the flat will
not be finished and they have lost their deposit.
Evergrande's
suppliers are dying of liquidity problems.
Domestic and
foreign investors who funded Evergrande's
adventurous investments are seeing their profits evaporate.
Chinese who have
locked their money into Evergrande'sasset management productscan write payouts
on their stomachs for the next five years. To compensate, Evergrande offers a free parking space or a
vacant flat.
What happens if
the company actually goes bankrupt?
The big question
is to what extent the Chinese state is holding its own. Beijing has been trying
to fight bubbles in the housing market for years. However, as soon as the
brakes are seriously stepped on, project developers, banks and municipalities
get into such trouble that the government intervenes, for fear of a hard crash.
China's addiction
to rapid economic growth by endlessly building with borrowed money is bigger
than Evergrande'sgiganticproblem. More than a quarter of all Chinese
investments are in real estate, resulting in ghost towns of vacant speculative
flats and unimaginable mountains of debt. A closed measure is now starting to
take effect, but that new discipline will be nullified if the state keeps
Evergrande afloat.
Doing nothing has
equally big disadvantages. If the boil of debt and financial risks erupts
uncontrollably, other sectors become infected. More than 128 banks and 121
financial institutions are said to have loans outstanding with Evergrande: there is a high risk that they will go under
together with Evergrande.
In the event of
evergrande's eventual bankruptcy, indirect employment for 3.8 million Chinese
will go up in smoke. If the slump spills over to other real estate companies
and their investors, the economic melt-down that has been predicted for years
is a fact, as a quarter of the Chinese economy is driven by real estate.
Where do we go
from here?
Forget economic
logic and look at the political risk, because therein lies the answer. Social
stability is a top priority for Chinese President Xi Jinping. He doesn't care if a private company
like Evergrande goes bankrupt, but Xi doesn't want a total real estate crisis
because of the risk of large-scale social unrest.
Already,
suppliers, small investors and homeowners in various cities are besieging
evergrande'soffices. With the increase in the number of victims, the likelihood
of government intervention increases, as Chinese citizens are counting on the
state to protect them from financial risks. Doing nothing is the best way to
unleash an uprising among the middle class.
The state is
sending a team of specialist lawyers and bookkeepers to Evergrande,according to bloomberg newsagency.
It would be a harbinger of possible
state-controlled dismantling of
the real estate giant, before the almost inevitable fall of Evergrande
poisons the entire economy.
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