Evergrande in-depth: How the default influences the global markets?

Evergrande in-depth: How the default influences the global markets? 1

China is among the top real estate developers. China Evergrande Group is issued fresh concerns about the risk of default as it struggles to find funds to pay its suppliers and lenders, with financial regulators and regulators fearful that any disruption could affect China’s banking system, triggering protests. Evergrande’s battle to keep from defaulting on billions of dollars of loans has sent the financial system of the world into a state of uncertainty.

Established in 1996 by Chairman Hui Ka Yan in Guangzhou, Evergrande Group is China’s second-largest real estate developer, with sales of $110 billion last year. The company went public in Hong Kong in 2009, aiding in the growth of its assets to $355 billion at present. It owns more than 1,300 development projects throughout the country, with a lot of them located in smaller cities. As sales have slowed over the last few years Evergrande is now expanding into companies like electric vehicles and football, insurance, and even bottled water.

Investors began to be concerned in September last year, after an unpublished letter purportedly from the company. It revealed Evergrande had asked for support from the government to support the now-discontinued backdoor listing plan. Evergrande denied that this letter had been fake. Worries grew after Evergrande admitted in June that it was unable to pay a commercial paper in time. Then, in July, a Chinese court had frozen the bank account of $20 million that the company held upon the request from Guangfa Bank.

The rapid growth of Evergrande is fueled by loans that have aided the buying of land and the rapid sale of apartments despite the low margins to restart the cycle. The total amount of its debt that includes the payment of debts is 1.97 trillion dollars ($306.3 billion) which is around 2 percent of China’s GDP. In addition to the standard bonds and bank channels, the developer has also been criticized for tapping into the shadow banking market, which includes trusts and wealth management products as well as commercial papers.

While the Evergrande crisis continues to wrack global markets, the value of Bitcoin has fallen nine percent, to less than $42,669, but same fate was coming for traders intending betting with USDT, as Etherium – another cryptocurrency with a strong track record was down nearly 10 percent to just $2,940 Monday. Bitcoin and Etherium have both recorded their lowest values since the beginning of August. the value of the global cryptocurrency has dropped by $250 billion.

The fears of a massive financial default within China led to a huge market selling. Not just the digital market but also traditional stock markets suffered from the constant threat of failure of the Chinese real property giant. On Monday, the US’s Wall Street fell in a general sell-off, and The S&P 500 and Nasdaq suffered their largest percentage drop per day since May.

American technology giants like Microsoft, Alphabet, Amazon, Apple, Facebook, and Tesla were among the largest impacts on Nasdaq as well as the S&P 500. However, Japan’s Nikkei 225 stock market posted the biggest single-day decline, 2.17 percent, in the last three months. Chinese markets were shut for an official holiday.

Particularly, the market value of Japanese firms with operations in China has dipped more than other companies, for example, Hitachi Construction Machinery losing over five percent of its value. In the case of gold, prices rebounded on Monday from a higher than one month low of $1,741.86 amid concerns about the impact of Evergrande’s problems with its solvency affected stock markets across the globe and drove investors towards safe-haven investments.

The uncertainty surrounding the future regarding the Chinese giant has created a fear among the global financial sector since Chinese regulators haven’t stated what they will take on the Evergrande Group. It is anticipated to be the case for Beijing to intervene should Evergrande and lenders are unable to agree on the best way to deal with its debts. Any final resolution will likely cause losses to banks and bondholders.

Evergrande is regarded as the most significant casualty to date from the Communist Party’s efforts to curb the rising debt levels Beijing considers to be a risk to the country’s economy. Many commentators have described the Evergrande situation as China’s “Lehman moment,” in reference to the bankruptcy of Lehman Brothers, which was an early warning sign of that 2008 financial crisis. The risk from global contagion may be very low since it holds the outstanding foreign currency of $18 billion bonds, and 215 billion of property and partially completed projects.

Written by Sony T

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