China’s Evergrande group, a major property giant in China is on the brink of defaulting on billions of dollars worth of loans.
Creditors are demanding that the embattled property giant pay up and the property giant has an absolutely brutal $408 billion worth of liabilities.
They themselves say that “The group has risks of defaults on borrowings and cases of litigation outside of its normal course of business,” the Shenzhen company said in an earnings statement published recently. “Shareholders and potential investors are advised to exercise caution when dealing in the securities of the group.”
In response to threats of legal action by lenders, the company has been disposing of equity interests and assets, halting projects, and borrowing even more to pay off debts that they already have. They have delayed payments to contractors and suppliers as well.
In the Hong Kong stock market, the Evergrande Group has fallen an absolutely devastating 72% in share prices and its bonds are doing as badly.
Its electric vehicle business is the worst performing in the world as well.
A lot of foreign money is going to be put at risk from this death spiral that Evergrande is facing. A lot of banks are about to face a lot of bad debt from this company.
Evergrande is the second biggest property developer in China at a time the real estate market is in a big bubble as it is. The construction and development sector of the Chinese economy has been absolutely critical to keeping the Chinese economy grow the way it has.
Iron ore prices would face a sharp decline to due to less demand that would result from this implosion and that is even assuming, China doesn’t diversify its imports of iron ore away from Australian iron ore, which it is aiming to do.
The chances of a Chinese government bailout are not very good either amid President Xi Jinping’s common prosperity campaign, which has seen crackdowns upon major tech companies, the for-profit tutoring sector being targeted by new regulations, Fintech firm Ant Group being forced to change its business model, just to name a few industries and companies being cracked down upon.
These crackdowns have wiped out $4 trillion in value off from these major Chinese companies.
East Asian countries and Australia would face the most consequences from a devastating collapse suffered by the Evergrande group, but it is highly likely it will spread beyond China, other East Asian states, and Australia.
Prepare accordingly if you haven’t already, the storm clouds are starting to gather and it won’t go away anytime soon.
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