Status: 09/24/2021 4:03 p.m.
The heavily indebted Chinese real estate company Evergrande has let the deadline for an expected interest payment pass. So the fear of a collapse has increased again.
Despite his promise to pay interest due today, Evergrande didn’t pay. Fear of a collapse of the heavily indebted Chinese real estate company has increased again. The stock slumped twelve percent after rising 30 percent in the previous days.
Evergrande had actually announced that it would pay $ 83.5 million in interest on an overseas bond. The bondholders had neither received the money nor a message from the company, said two people familiar with the matter from the Reuters agency. There was also uncertainty about interest payments of $ 47.5 million due in the coming days.
A 30-day grace period begins for Evergrande, after which the group would officially be in default. Evergrande last paid interest on a domestic bond. “The Beijing government thinks it can treat foreign creditors differently,” said Karl Clowry, partner at brokerage firm Addleshaw Goddard.
The central bank is again pumping money into the system
The Chinese central bank again pumped money into the banking system to calm the financial markets. On the part of the government, however, there was no statement on possible state aid by Friday evening. The “Wall Street Journal” had reported, citing insiders, that authorities in Beijing had asked local governments to prepare for a possible collapse of Evergrande. “The government in Beijing will probably try to prevent major upheavals and, above all, to limit the losses suffered by the Chinese population,” said LBBW analyst Frank Klumpp.
Evergrande has hired financial advisors to work out a restructuring. Individual banks in China stopped lending to real estate developers, as the Reuters news agency learned from financial circles. “It is assumed that not only Evergrande, but also some other developers are on the verge of a liquidity crisis or even bankruptcy,” said an insider at the Bank of Shanghai. It has become much more difficult to get loans for construction projects in less popular cities. Other banks have now asked for more collateral.
ECB sees limited risks for Europe
“The longer politicians wait before acting, the higher the risk of a hard landing,” warned analysts at Bank Société Générale. “We are concerned about the potential impact on the real economy.” 200,000 people work at Evergrande, and several million workers are hired for construction projects every year. In addition, many small investors have invested money in Evergrande financial products. Some of them had stormed the company’s headquarters a few days ago and asked for their money back. Analyst Jackson Chan of the online broker Bondsupermart expects Evergrande to take full advantage of the 30-day deadline to await possible support from the state.
Meanwhile, the European Central Bank (ECB) sent reassuring signals to the markets. Evergrande’s problems are centered on China, ECB President Christine Lagarde told CNBC. “For Europe, I can say that direct engagement is limited.” The ECB is looking at the situation. The head of the US Federal Reserve, Jerome Powell, had recently stated that the possible consequences for US companies from Evergrande’s debt problems were limited. The Swiss central bank warned the SNB against playing down the situation and viewing it as a local problem in China.