In May 2020, Chen (not his real name) decided to invest 300,000 yuan (£34,000) in property in the north-eastern Chinese city of Shenyang. “I thought the price was not too expensive and I had some extra money so I invested it,” he said. “I thought it was going to be all right because Evergrande is such a big name and enterprise.”
Chen was following in the footsteps of countless fellow Chinese, getting in on a booming property market that had turned big cities such as Beijing, Shenzhen and Shanghai into some of the world’s most expensive, amid the huge transfer of the population from rural to urban areas.
But in the 16 months since Chen bought his off-plan apartment, Evergrande – a Fortune Global 500 company – has become the country’s most indebted developer, with more than $300bn (£220bn) in liabilities, dozens of sprawling residential projects stalled and an estimated 1.5 million unfinished apartments that it needs to deliver to investors.
The potential collapse – the culmination of years of borrowing – has sent shockwaves through the finance and property sectors, and prompted concern that it could affect China’s entire financial system, even international markets. There are also concerns about how it will affect iron ore prices. On Thursday, the Fitch Ratings agency downgraded its forecast for China’s economic growth, saying the “main factor weighing on the outlook is the slowdown in the property sector”.
Two weeks ago Evergrande issued a public statement, admitting it was facing “unprecedented difficulties” and had hired restructuring consultants, but hit back at speculation of bankruptcy.
Wednesday appeared to bring some hope, as the company announced it had reached a deal to repay interest on a domestic bond due on Thursday. But it did not announce the payment of $83.5m due in interest to international bondholders on the same day. And as the silence continued into Friday, worries were compounded by reports that its electric vehicle unit had missed payments to suppliers and salaries to some staff.
“I don’t see any alternative for the company than going through some form of debt restructuring, which will involve significant debt rescheduling, potentially a debt-for-equity swap,” said Michel Löwy, chief executive of the global banking group SC Lowy.
Evergrande’s crisis has not come without warning, and in recent years Chinese regulators have been putting the squeeze on the country’s entire property market, valued at $52 trillion by Goldman Sachs in 2019.
All over China, dozens of high-rises continually spring up, spread across spaces the size of several football fields. The rush to build has caused numerous problems, including risky finances, poor construction –…
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