An update on Evergrande and its current status

According to Fitch Ratings, the highly leveraged Chinese building developer Evergrande Group (EGRNY) is in default on its debt services. As a result, s&P Global Ratings and Moody's ratings assigned to Evergrande were not issued until December 10, 2021.

Fitch Ratings listed Evergrande in default since it assumes two interest payments due after a grace period expired on December 6, 2021, have not been made. However, the Fitch rating downgrade was expressed as "restricted default," which means that Evergrande is not yet in bankruptcy proceedings, nor has the Hong Kong-based property development company ceased operations.

The company's total liabilities are about $300 billion. In addition to this amount, there is $19 billion worth of bonds issued offshore in US dollars, more than any other Chinese real estate developer has.

Natixis economist Alicia Garcia-Herrero said that this situation had been a technical default for a long time, but no one had dared to declare it. It isn't made clear by China because there isn't pressure. Rating agencies and investors ought to have pushed for it to be labeled--but nobody wants to face the consequences. Everyone is trying to maximize their gain.

Founder of Evergrande, formerly known as the Hengda Group, Hui Ka Yan founded the company in Guangzhou, China, in 1996. Currently, Evergrande Real Estate has 1,300 projects under construction in over 280 Chinese cities.

Evergrande Group has become much more than just a real estate development company in recent years. to wealth management, it manufactures electric cars and food products. It even has one of the country's most famous football teams, the Guangzhou FC.

According to Forbes, Mr. Hui is worth more than $10bn (£7.3bn) despite seeing his wealth drop in recent months.

What is the problem with Evergrande?

The Chinese company Evergrande borrowed more than $300 billion to expand aggressively and become one of the country's biggest companies. However, a new set of rules was instituted by Beijing last year to control the debts owed by major real estate developers. Due to these new measures, Evergrande offered its properties at steep discounts to ensure they could stay afloat. As a result, the company is now struggling to pay its debt interest.

Over the last year, Evergrande's shares have slid by almost 90% due to this uncertainty.

What would happen if Evergrande collapses?

Evergrande's problems are serious because of several factors. The first is that many of Evergrande's properties were purchased before construction began. If the company goes bankrupt, the depositors will lose their money.

Additionally, Evergrande does business with other companies. As a result, several firms, including construction and design firms and suppliers of materials, may suffer significant losses, leading to their failure.

Third, Evergrande's default may have a detrimental effect on China's financial system. If the company defaults, banks and other lenders could be forced to reduce lending. This could cause the so-called credit crunch, in which companies have difficulty borrowing money at low rates.

It would be very detrimental to the world's second-largest economy if a credit crunch occurred since companies are unable to borrow, have a hard time growing, and sometimes cease operations. Additionally, this could unnerve foreign investors, who may view China as a less attractive investment destination.

Updates on Evergrande

As of January 14, 2022, China Evergrande Group saw its shares rise on Friday after getting approval from bondholders onshore to delay payments on one of its bonds. Developers are rushing to avoid defaults as they seek to avert losses.

The company is working to avoid $300 billion in liabilities, including $19 billion in international bonds considered in cross-default earlier this month after it missed a payment deadline. In addition, Evergrande's technical default could complicate its political restructuring procedure.

On Thursday, January 13, an agreement was reached with the bondholders for a 4.5-billion-yuan bond due on January 8 to postpone redemption and coupon payments for six months. According to Kington Lin, managing director of the Asset Management Department at Canfield Securities, "approval was expected; bondholders don't want to part with Evergrande right now because they think the problem will eventually be resolved."

Evergrande's shares rose 1.2% as of 0330 GMT, while the Hang Seng Mainland Properties Index declined 0.2%. The company's subsidiary, China Evergrande New Energy Vehicle Group Limited, gained 8.1%. This week, investors approved an extension to a yuan bond payment date for China Evergrande Group, whose rocky financial condition has rocked Chinese property firms this year.

According to a source familiar with the situation, investors were given a glimpse of what to expect from other property firms scrambling to service their debts with an extension proposal that regulators had implicitly approved.

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