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What is Evergrande and is it too big to fail?

    • 518 posts
    December 5, 2021 9:14 PM EST

    The world's most indebted real estate developer is facing a series of deadlines for bond interest payments, totalling tens of millions of dollars.To get more International finance news china, you can visit shine news official website.

    The company has been taking steps in recent weeks to raise the money it owes to customers, investors and suppliers.Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China.

    Evergrande Real Estate currently owns more than 1,300 projects in more than 280 cities across China.The broader Evergrande Group now encompasses far more than just real estate development.

    Its businesses range from wealth management, making electric cars and food and drink manufacturing. It even owns one of country's biggest football teams - Guangzhou FC.

    Mr Hui was once Asia's richest person and, despite seeing his wealth plummet in recent months, has a personal fortune of more than $10bn (£7.3bn), according to Forbes.Evergrande expanded aggressively to become one of China's biggest companies by borrowing more than $300bn.

    Last year, Beijing brought in new rules to control the amount owed by big real estate developers.The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.Now, it is struggling to meet the interest payments on its debts.

    This uncertainty has seen Evergrande's share price tumble by around 80% this year. Its bonds have also been downgraded by global credit ratings agencies.Firstly, many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.

    There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.The third is the potential impact on China's financial system.

    "The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms," the Economist Intelligence Unit's (EIU) Mattie Bekink told the BBC.If Evergrande defaults, banks and other lenders may be forced to lend less.

    This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.A credit crunch would be very bad news for the world's second largest economy, because companies that can't borrow find it difficult to grow, and in some cases are unable to continue operating.

    This may also unnerve foreign investors, who could see China as a less attractive place to put their money.The very serious potential fallout of such a heavily-indebted company collapsing has led some analysts to suggest that Beijing may step in to rescue it.

    The EIU's Mattie Bekink thinks so: "Rather than risk disrupting supply chains and enraging homeowners, we think the government will probably find a way to ensure Evergrande's core business survives."

    In a post on China's chat app and social media platform WeChat, the influential editor-in-chief of state-backed Global Times newspaper Hu Xijin said Evergrande should not rely on a government bailout and instead needs to save itself.