Massive Chinese property developer in crisis, markets rocked

Evergrande, one of the world’s most indebted property giants, may be about to default on hundreds of billions of debt, a collapse that would send ripple effects across the global economy.

Shares of Evergrande, a Fortune 500 real-estate developer with headquarters in Shenzhen, Guangdong, China, plunged on the stock market as concerns grew over its ability to meet payment obligations. Its share price has fallen some 75% in the year to date.

In 2020 the company had sales of more than $100 billion and adjusted core profits of some $5 billion. While it has diversified in recent years, its main business is in property. Construction on many of Evergrande’s projects has now halted in the continuing crisis.

It has borrowed heavily in recent times, becoming the world’s most heavily-indebted property developer with over $300 billion in liabilities.

Commentators say the company aggressively pursued land purchases by bidding significantly higher than market – transferring the risk to the banks and investors financing the expansion.

Financing the huge debt incurred for this expansion started to become a problem for Evergrande last year. One solution it embraced was to push its employees to provide short-term loans to the company, advising the move was a requirement to ensure year end bonuses. It has now left thousands of angry employees in the lurch.

It’s reported that up to 1 million homebuyers may be left in limbo, after paying deposits upfront for houses and apartments that may never be built.

Contagion may have already entered the market as shares in another Chinese property developer also dropped steeply this afternoon in Hong Kong.

 

 

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