Worldwide: Evergrande’s liquidity crunch highlights problems in China’s real estate sector
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Chinese group Evergrande made the news this week as reports of a growing liquidity crisis in the conglomerate threaten to shake up Chinese markets, especially in the real estate sector. Evergrande, a real estate developer with over $ 300 billion in debt, is now struggling to repay that debt in the face of changing market and regulatory conditions. Evergrande’s recent exponential growth into a major real estate developer in China has been funded by significant debt. But, during that time, it also paid large dividends, with its founder and chairman, among others, receiving more than $ 5.2 billion in distributions since 2018.
Evergrande is now facing a serious cash shortage. He appears to have missed an interest payment of $ 83.5 million that was due on September 23 on a US $ 2 billion bond issue, although the company has 30 days to remedy this payment before it is released. ‘an event of default does not occur. And he has a second large interest payment due next week on a different debt issue. To help free up some cash, Evergrande attempted to sell some of its non-core assets, including at least some of its EV and property management units.
Evergrande’s challenges highlight a slowdown in the Chinese real estate market. Even during the pandemic, demand for housing was strong, with some new developments selling out in days, hours or even minutes. Today, in the face of reduced demand and tighter government debt regulations, it has become increasingly difficult to finance, develop and sell new housing projects, with some developers even having to demolish high-rise buildings. partially constructed after being unable to secure financing to complete construction. .
Reports from China suggest the government is unwilling to bail out the beleaguered property developer. This has heightened concerns about a possible contagion throughout the country’s real estate and financial sector, amid perceptions of weak real estate markets and fears that the Xi government is more willing than previous administrations to let large companies. going bankrupt. Meanwhile, despite some reports to the contrary, some analysts are skeptical that the effects of the Evergrande challenges will spread beyond China’s borders, and domestic and international markets appear to have allayed concerns about macro effects. internationals caused by Evergrande, at least for now.
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