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Evergrande’s $300 billion debt endangers global economy

Evergrande

TL;DR Breakdown

  • China-based real estate giant Evergrande is in turmoil as its debts prove to be a pain point for its progress.
  • The company may soon be facing bankruptcy issues with one of its primary fund injectors, the German Market Screening Agency.

Evergrande is again finding itself in hot soup, following its near-default to its $300 billion debts. The real estate development company based in China has been a major focus in the global financial news due to its current situation. According to financial analysts, its downfall could mean trouble for the global economic space.

Additionally, Evergrande is facing bankruptcy filing from its foreign investor, the Deutsche Marktscreening Agentur (German Market Screening Agency). In a statement released to the press, the real estate company failed to meet the dates for bond payments twice in September. It also explained that this default automatically results in the same for the remaining 21 bonds.

So far, the company has different bond loans from offshore investors, which are needed for several projects in its plans. The global pandemic has negatively influenced the global economy, contributing to Evergrande’s worsening woes

Nonetheless, many financial figures connect its failure in the market to the massive and poorly-planned projects it embarked on. Furthermore, it lacks a precise definition of its assets, which leads to outside parties being wary. After its two debt defaults, it has been walking on shaky ground and lacking investors to help in raising funds.

It has garnered the name ‘the most indebted developer’ globally, also being considered one of the most unsustainable projects. 

A threat to the global space

Evegrande’s position could lead to an event similar to the 2008 global financial crisis. According to different analysts, China holds many beneficial partnerships with countries worldwide. The real estate developer is one of the largest companies in the country would reduce China’s credibility as a financial partner if it failed.

If this were to turn out, China would lose vital contributors to its economy and vice versa.

Moreover, it is causing a drag in the real estate sector development within the country. Housing has become a vital stress point for the Chinese government, considering how expensive owning homes was. Its current campaign is to ensure every citizen can access suitable housing instead of dealing with past conditions.

Recent reports show that China has unoccupied residential buildings that could potentially house millions. It also stands that the sector has been losing demand in recent years, requiring stabilization of the communist economy. Evergrande is not riding the financial problems solo as six other real estate developers are down the same road. 

What next for Evergrande?

Notably, the company’s stocks have been down by nearly 85% since the beginning of the year. If the DMSA goes through with the bankruptcy filing, Evergrande would have to forfeit the ownership of its assets to deal with the debts. As such, many people are wondering what the Chinese government will do to improve the Evergrande situation.

Evergrande is involving financial advisors to see the best way forward in getting off the quicksand. However, it seems that the government is still reluctant to direct involvement with the company. The world is keeping a watchful eye on this turn of events, hoping China decides to play a hand into the matter, even from the sidelines.

Edith Muthoni

Edith Muthoni

Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, cryptocurrencies, blockchain, and cryptocurrency investments.

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