2008 looms over the world: Chinese developer has accumulated 300 billion in debt

Yelena Ivanova

As early as July 1, the head of the Chinese developer Hui Ka Yan was at the pinnacle of power in China, the Handelsblatt newspaper writes. Standing on the podium in Tiananmen Square, he applauded Chairman Xi's address to mark the 100th anniversary of the Chinese Communist Party. The honor of standing on the main tribune of the country also said that the third richest businessman in the country, whose total income is estimated at $ 30 billion, has the closest ties with the leadership of the second economy in the world.

Two months later, Hui Ka Yan is fighting to save his brainchild.

This week, the Chinese developer had to pay interest on loans and bonds. The largest banks have already announced that there will be no payments totaling $ 61 million, BBC reports.

The debt crisis of China's second-largest construction giant has raised fears that if Evergard collapses, the entire Chinese economy will suffer.

Last year, the Chinese government tightened lending requirements for the construction industry. So Evergarde started selling its properties to get fresh money and keep the business afloat.

The developer's problems are much more serious than it seems at first glance.

If the concern collapses, China will face the problem of equity holders, because Evergarde sold real estate before construction began. With a construction volume of 80 million square meters a year, China will have to help millions of ordinary Chinese.

The developer cooperates with a large number of suppliers, subcontractors, architectural firms, over which the threat of bankruptcy will immediately arise in the event of difficulties for their client.

In the event of insolvency, the entire financial system of China will suffer.

“Insolvency will have far-reaching consequences. According to the stock exchange, Evergarde had credit relationships with 117 Chinese banks and 121 financial companies”, - said the head of financial intelligence to The Economist magazine.

If Evergarde defaults , banks and other borrowers will no longer lend to other market participants. This will lead to an increase in the cost of loans.

Expensive loans will hurt the second economy in the world, because without fresh money, enterprise growth is impossible.

If growth slows, it will scare off foreign investors and they will want to place their money in more interesting markets.

Some analysts believe the government will not let a company of this size collapse. “The risk of economic breakdown and the danger of getting millions of angry equity holders is too great, so the government will try to find a way to keep Evergarde from collapse,” says an analyst at The Economist.

Other experts are not so optimistic.

FT writes that Wall Street reacted to the crisis in Asia. The S & P 500 fell 1.4 percent, while the Nasdaq fell 1.5 percent.

Investors fear not only the fall of one company, but also the state of the entire construction complex in China.

"Evergarde" is the tip of the iceberg", - said the CEO of Wealthy Securities . Chinese developers have to pay on dollar-denominated bonds. The market has become volatile as investors fear pressure from Beijing, which is forcing developers to cut debts for properties in mainland China and Hong Kong.

Commerzbank analysts say instability in the construction market will affect metal markets. Indeed, for the first time in a year, the price of steel fell below $ 100 per ton.

The market recalls the beginning of the financial market in 2008, which began with the US mortgage crisis in 2006 and the subsequent bankruptcy of banks in 2008. The watershed was the bankruptcy of Lehman Brothers on September 15, 2008. After him, the bankruptcy of large banks in the United States and around the world began and their salvation by national governments began. In 2008, the crisis covered all aspects of economic life and became global. Production volumes fell, unemployment rose, demand for raw materials and prices for them fell.

So far, due to the holidays in China, the situation with Evergarde remains open, Der Spiegel said. Rating agencies have lowered the developer's shares to "junk" values. Fitch said that the insolvency of the company is very likely. In their opinion, the credit risk is very high. Analysts point to a lack of liquidity, reduced sales, non-payments to suppliers and construction companies.