Is Chinese Evergrande doomed to bankruptcy?


As of Monday, Chinese real estate giant Evergrande failed to pay $ 82 million in interest owed to bondholders that day. When the rating firm Fitch’s could not get a response from Evergrande as to whether it had made the payment or not, it classified the company in its “limited default” category, for companies that defaulted but have not yet initiated bankruptcy or restructuring proceedings. .

What will happen next is a guess. But it’s a safe bet that the Chinese government will try to hurt foreign bondholders the most. A recent attempt by Evergrande to sell its electric vehicle business failed as potential buyers expected to be able to buy it later at a lower price.

But there is no doubt that the ultimate decisions will be made by the Chinese Communist Party. Evergrande has $ 300 billion in book debt and maybe $ 156 billion in book debt, according to to the New York Times.

China is letting more and more mismanaged companies go bankrupt, trying to reduce the amount of corporate debt that has been accumulated, which many economists consider excessive. But allowing Evergrande to be dismantled and its pieces sold at rock-bottom prices may not be politically possible. More than 1.5 million Chinese families have already paid Evergrande for apartments that have yet to be built. If Evergrande is forced into Iowa bankruptcy “}” data-sheets-userformat=”{“2″:513,”3”:{“1″:0},”12″:0}”>Iowa bankruptcy , these families might only receive pennies on the dollar. And millions more families have paid other real estate giants, like Kaisa, for apartments not yet built. Kaisa also missed a recent interest payment on some of her bonds held overseas and could also be declared in default at any time.

The Chinese economy has slowed in recent months, especially its real estate sector. The government had restricted the amount of borrowing from its heavily indebted property developers. But it has slowed down the real estate market – a big part of the Chinese economy. Sales by the top 100 real estate companies fell for the fifth consecutive month in November, down 37.6% from the previous year. The government recently reduced the amount of cash that banks must keep in reserve, which would allow them to lend more money.

There will be a leadership reshuffle next year, as Xi Jinping enters his third term. And the CCP still wants a strong economy in times of political change.

During past economic problems, such as the 2008 recession and the 2014 housing market slowdown, the government stepped up stimulus measures, lowering interest rates and stepping up investment in infrastructure. This, in turn, made many Chinese families believe that the government would not allow real estate companies to default and put their investments at risk.

China, often seen as an upcoming superpower among the world’s major economies, has a lot of economic problems and less room for maneuver than in previous recessions.

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