After Beijing's recent crackdown on digital enterprises, Evergrande's problems have led to rising concerns about the health of China's economy. The Hang Seng index is a measure of the stock market’s performance. HSI lost 3.5%, while FTSE China futures SFCc1 fell 3% in Singapore.
"Concerns over Evergrande are rising and signs of financing difficulties spreading to other developers are emerging, The Chinese government needs to "carefully manage" Evergrande's potential default or restructuring, while delivering a clear message to help "shore up confidence and to stop the spillover effect,” Goldman Sachs Analysts’ said in a research report published Sunday night.
JP Morgan also warned about the potential consequences,
"If politicians toe the government directives on ensuring a stable housing market, we do not expect the company's imminent default to be too disruptive for the sector," JPMorgan said.
How did Evergrande got into this turmoil?
Beijing enacted new laws last year to regulate the amount due by large real estate developers, in order to cool down an overheating housing bubble and by that time Evergrande was already tangled in massive debt exceeding $310B.
As a result of new rules the company offered its properties on sale to ensure cashflow and that didn’t make anything easier for them in-fact it created struggles to make interest payments on its loans.
How big can the spillover get if Evergrande collapses?
Chinese authorities informed the Banks that they won’t be receiving their interests on debts as reported by Bloomberg
With more than $310 billion in liabilities, the company is China's most indebted developer. It has warned investors about cash flow issues in recent weeks, stating that it may default if it is unable to raise funds quickly.
This sent shock waves into the Markets, the duo Hong Kong developers New World Development and Chinese Estates Holdings, known as Evergrande's long-time allies who frequently supported the company by purchasing its bonds or stakes, fell 12.3% and 8.5%, respectively. Country Garden, another Chinese property developer, also lost more than 6% of its value.
The spill also impacted some companies who claimed that they had “Zero exposure” to Evergrande, like China’s major insurance Company Ping An Insurance which lost around 6%.
Financial institutions, retail investors, homebuyers, and suppliers in the construction, materials, and design industries all hold significant amounts of the Company's massive liabilities.
According to one estimate, Evergrande owes nearly 1.6 million apartments to buyers, and also owe tens of thousands to its 200,000 employees. After it recently gave its workers a choice, “Loan us cash or lose your bonus.”
"There isn't much time left for us," said Jin Cheng, a 28-year-old employee in the eastern city of Hefei who said he put $62,000 of his own money into Evergrande Wealth, the company's investment arm, at the request of senior management. Those who are owed are growing impatient as Beijing remains relatively silent about the company's future.
Beijing has yet to intervene with a bailout, promising to teach debt-ridden corporate giants a lesson, despite regulators are concerned that the collapse of Evergrande would cause chain reaction at a global level.
Meanwhile in Crypto………
Bitcoin fell below $42,500 in a broad sell-off of cryptocurrencies on Monday, sparked by concerns that the effect of Chinese property giant Evergrande's debt crunch would spill over into other asset classes.
“The week ahead is expected to be choppy, with a potential pullback for bitcoin to as low as $41,000, although a key support remains at $44,000.” said by Jonas Luethy, sales trader at UK-based digital asset broker GlobalBlock.
El Salvador took advantage of the dip by adding a further 150 bitcoins to its holdings, now amounting to 700 bitcoin or $31 million. "They can never beat you if you buy the dips," President Nayib Bukele said in a tweet.
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