Home Japanese values Evergrande in depth: How does default influence global markets?

Evergrande in depth: How does default influence global markets?



China is one of the main real estate developers. China Evergrande Group has new concerns about the risk of default as it struggles to find funds to pay its suppliers and lenders, with financial regulators and regulators fearing that any disruption could affect China’s banking system, sparking protests. Evergrande’s battle to avoid the default of billions of dollars in loans has plunged the global financial system into a state of uncertainty.

Founded in 1996 by Chairman Hui Ka Yan in Guangzhou, Evergrande Group is China’s second-largest real estate developer, with revenues of $ 110 billion last year. The company went public in Hong Kong in 2009, helping to grow its assets to $ 355 billion today. It has more than 1,300 development projects across the country, many of which are located in smaller towns. While sales have slowed in recent years, Evergrande is now expanding into businesses such as EVs and football, insurance, and even bottled water.

Investors began to worry in September of last year, after an allegedly unpublished letter from the company. He revealed that Evergrande had asked for government support to support the now-abandoned backdoor listing plan. Evergrande denied that this letter was false. Concerns grew after Evergrande admitted in June that it was unable to pay off commercial paper on time. Then, in July, a Chinese court froze the $ 20 million bank account the company was holding at the behest of Guangfa Bank.

Evergrande’s rapid growth is fueled by loans that have made it easier to buy land and sell apartments quickly despite low margins to jump-start the cycle. The total amount of its debt which includes the payment of debts is $ 1.97 trillion ($ 306.3 billion), or about 2% of China’s GDP. In addition to standard bonds and banking 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.

As the Evergrande crisis continues to rock global markets, Bitcoin’s value has fallen nine percent, to below $ 42,669, but the same fate awaited traders intending to bet with USDT, like Etherium – another cryptocurrency with a strong balance sheet was down almost 10 percent to just $ 2,940 on Monday. Bitcoin and Etherium both posted their lowest values ​​since early August. the value of the global cryptocurrency has fallen by $ 250 billion.

Fears of a massive financial default in China led to a huge sell-off in the market. Not only the digital market but also traditional stock markets have suffered from the constant threat of failure from the Chinese real estate giant. On Monday, Wall Street in the United States fell into a massive selloff, and the S&P 500 and Nasdaq suffered their biggest percentage decline per day since May.

US tech giants like Microsoft, Alphabet, Amazon, Apple, Facebook and Tesla were among the biggest impacts on the Nasdaq as well as the S&P 500. However, the Japanese stock market Nikkei 225 recorded the biggest decline in one day, 2.17%, in the last three months. Chinese markets have been closed for a public holiday.

In particular, the market value of Japanese companies with operations in China has fallen more than other companies, for example, Hitachi Construction Machinery has lost more than five percent of its value. In the case of gold, prices rebounded on Monday from an above-one-month low at $ 1,741.86, as concerns over the impact of Evergrande’s problems on its creditworthiness affected stock markets around the world whole and pushed investors towards safe haven investments.

The uncertainty surrounding the future of the Chinese giant has created fear among the global financial sector as Chinese regulators have not indicated what they will face the Evergrande group. Beijing is expected to step in if Evergrande and the lenders fail to agree on the best way to settle its debts. Any final resolution is likely to result in losses for banks and bondholders.

Evergrande is seen as the biggest casualty to date in the Communist Party’s efforts to curb rising debt levels that Beijing sees as a risk to the country’s economy. Many commentators have described the Evergrande situation as China’s ‘Lehman moment’, in reference to the Lehman Brothers bankruptcy, which was a harbinger of this 2008 financial crisis. The risk of global contagion may be very low because it holds the outstanding foreign exchange of $ 18 billion in bonds and 215 billion in real estate and partially completed projects.



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