Analysis: China's House of Cards: Evergrande Threatens Wider Real Estate Market

7/20/22, 11:40 AM Analysis: China's house of cards: Evergrande threatens wider real estate market | Reuters
September 15, 2021 · 5:00 AM GMT+3

Last Updated 10 months ago
Analysis: China's house of cards: Evergrande

threatens wider real estate market
By Tom Westbrook and Andrew Galbraith 4 minute read
https://www.reuters.com/world/china/chinas-house-cards-evergrande-threatens-wider-real-estate-market-2021-09-14/ 1/22
The China Evergrande Centre is seen in Hong Kong, China. August 25, 2021. REUTERS/Tyrone Siu/File
Photo
SINGAPORE/SHANGHAI, Sept 14 (Reuters) - China Evergrande is teetering between a messy

meltdown with far-reaching impacts, a managed collapse or the less likely prospect of a bailout
by Beijing for what was once the country's top-selling property developer.
Founded in Guangzhou in 1996, Evergrande has epitomised China's freewheeling era of

borrowing and building, but with liabilities of nearly two trillion yuan ($305 billion) its possible
collapse looms as one of China's largest for years.
Advertisement · Scroll to continue
Debt and land-buying curbs and hundreds of new rules have been imposed on Chinese
developers over recent years as part of a push to cut financial risks and promote affordable
housing.
Register now for FREE unlimited access to

Register
Reuters.com
Evergrande (3333.HK), which accelerated efforts to cut its debts in 2020 after regulators
introduced caps, does not have any major offshore bond maturities until early next year but
tardy payment of suppliers and interest on loans have brought to a head concerns that have
long nagged at investors.
Now, without access to fresh funding, Evergrande cannot pay suppliers, finish projects or raise
income, prompting it to hire advisors and warn of default risk. This, along with a buyout, break-
up or bailout are the scenarios now being evaluated. read more
And while analysts have played down comparisons to the 2008 collapse of U.S. investment
bank Lehman Brothers, which caused crises at counterparties and ultimately seized up global
markets, some investors have similar contagion concerns.
"If as expected Evergrande is defaulting on its debt and goes through a restructuring, I don't see
why it would be contained," Michel Lowy of banking and asset management firm SC Lowy,
which focuses on distressed and high-yield debt, said.
"There are other developers that are suffering from the same problem of no access to liquidity
and have extended themselves too much," Lowy added.
Other worries include the exposure of banks and the determination of regulators to press on
with property market reforms despite hints of damaging consequences. read more
Reaction has so far concentrated in the bond market and on Evergrande's stock, as well as the
stocks and bonds of other developers such as, among others, Guangzhou R&F Properties Co
(2777.HK) and Xinyuan Real Estate Co (XIN.N).
Evergrande shares are down about 90% in 14 months, while its dollar bonds are trading at 60-
70% below par.
"Stress is mounting for the most obvious grey rhino in China, namely the real estate sector,"
Natixis economist Alicia Garcia Herrero said.
FIRE SALE
The most immediate concern is of a real estate crash rather than a Lehman-style financial crisis.
An Evergrande fire sale could crush prices, causing leveraged developers to blow up and
crippling a sector comprising a quarter of China's economy.
"Lehman (was) very different as it went across the financial system, freezing activity," said
Patrick Perret-Green, an independent London-based analyst.
"Millions of contracts with multiple counterparties, everyone was trying to work out their
exposure," he said. "With Evergrande it depresses the entire real estate sector."
Bank exposure is also wide and a leaked 2020 document, written off as a fabrication by
Evergrande but taken seriously by analysts, showed liabilities extending to more than 128 banks
and over 121 non-banking institutions.
But data suggests non-performing loans at commercial banks were a manageable 1.76% last
quarter, and compared to the United States, China has far greater control over its financial
system.
A drive by authorities to cut developers' debts is also seen as increasing the likelihood of a
property liquidation.
"The government has worked tirelessly to drive de-leveraging in the bloated real estate sector,
so throwing a lifeline to Evergrande now is unlikely," said James Shi, distressed debt analyst at
credit analytics provider Reorg.
Analysts are increasingly expecting a managed collapse that seeks to protect smaller investors,
with around a hundred angrily showing up to Evergrande's headquarters on Tuesday, while
bondholders take a haircut.
"We do not believe the government has an incentive to bail out Evergrande (which is a private-
owned enterprise)," Nomura analyst Iris Chen said in a note to clients.
"But they will also not actively push Evergrande down and will supervise a more orderly default,
if any, in our view."
My View Following Saved
If Evergrande is to recoup anything, it must first find buyers for its assets, which it has been
struggling to do as potential saviours seem content to wait for more distress.
In a stock exchange announcement on Tuesday, Evergrande said it had not been able to
complete the disposal of its office building in Hong Kong "within the expected timetable".
"The ongoing negative media reports concerning the group have dampened the confidence of
potential property purchasers," Evergrande added.
Register now for FREE unlimited access to

Register
Reuters.com
Reporting by Tom Westbrook in Singapore and Andrew Galbraith in Shanghai; Additional reporting by Vidya Ranganathan in
Singapore and Samuel Shen in Shanghai; Editing by Alexander Smith
Our Standards: The Thomson Reuters Trust Principles.
More from Reuters
Greek fur industry

struggles amid Russian
sanctions
Villagers join
firefighters to save
Spanish village
Britain's fields scorched

as country swelters
Ghana confirms its first

Marburg outbreak
Reuters Daily Briefing
Subscribe to our daily newsletter to get all the news you need to start your day.
Sign up
Sponsored Content
The latest trends on EU Taxonomy: Why What is the latest on The latest news on
responsible investing 19% are eligible yet ETFs? commodity markets
only 7% of funds use from leading experts
>10%.
Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews Sponsored by MarketViews
Sponsored Content
The Latest Market Chart: Data shows The latest news on What is the latest on
Thinking From The Boards severely commodity markets ETFs?
World's Finance lagging on gender from leading experts
Experts diversity
Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews Sponsored by MarketViews
Sponsored Content
Discover the latest Trending news on Robotics and Artificial The latest trends on
trends and ideas for Gold Markets. Intelligence. Discover responsible investing
retirement planning. the trends.
Sponsored by MarketViews Sponsored by MarketViews Sponsored by MarketViews Sponsored by MarketViews
Sponsored Content
Oil. What next? The Latest Market Chart: Data shows The latest news on
Thinking From The Boards severely commodity markets
World's Finance lagging on gender from leading experts
Experts diversity
Sponsored by MarketViews Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews
Latest Browse
Home World
Business
Media Legal
Videos Markets
Pictures Breakingviews
Graphics Technology
Investigations
Lifestyle
About Reuters
About Reuters
C
Careers
Reuters News Agency
Brand Attribution Guidelines
Reuters Leadership
Reuters Fact Check
Reuters Diversity Report
Stay Informed
Download the App
Newsletters
Information you can trust

Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching
billions of people worldwide every day. Reuters provides business, financial, national and international news to
professionals via desktop terminals, the world's media organizations, industry events and directly to consumers.
Follow Us
Thomson Reuters Products
Westlaw Onesource Checkpoint

Build the strongest argument relying on The most comprehensive solution to The industry leader for online information
authoritative content, attorney-editor manage all your complex and ever- for tax, accounting and finance
expertise, and industry defining expanding tax and compliance needs. professionals.
technology.
Refinitiv Products
Refinitiv Workspace Refinitiv Data Catalogue Refinitiv World-Check

Access unmatched financial data, news Browse an unrivalled portfolio of real-time Screen for heightened risk individual and
and content in a highly-customised and historical market data and insights entities globally to help uncover hidden
workflow experience on desktop, web and from worldwide sources and experts. risks in business relationships and human
mobile. networks.
Advertise With Us Advertising Guidelines
All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.
Cookies Terms of Use Privacy Digital Accessibility Corrections Site Feedback
© 2022 Reuters. All rights reserved

Analysis: China's House of Cards: Evergrande Threatens Wider Real Estate Market

Uploaded by

Copyright:

Available Formats

You might also like

Analysis: China's House of Cards: Evergrande Threatens Wider Real Estate Market

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Analysis: China's House of Cards: Evergrande Threatens Wider Real Estate Market

Uploaded by

Copyright:

Available Formats

7/20/22, 11:40 AM Analysis: China's house of cards: Evergrande threatens wider real estate market | Reuters

September 15, 2021 · 5:00 AM GMT+3

Analysis: China's house of cards: Evergrande

SINGAPORE/SHANGHAI, Sept 14 (Reuters) - China Evergrande is teetering between a messy

Founded in Guangzhou in 1996, Evergrande has epitomised China's freewheeling era of

Advertisement · Scroll to continue

Register now for FREE unlimited access to

Advertisement · Scroll to continue

Advertisement · Scroll to continue

Advertisement · Scroll to continue

Advertisement · Scroll to continue

Advertisement · Scroll to continue

Advertisement · Scroll to continue

Advertisement · Scroll to continue

My View Following Saved

Register now for FREE unlimited access to

Our Standards: The Thomson Reuters Trust Principles.

More from Reuters

Greek fur industry

Britain's fields scorched

Ghana confirms its first

Reuters Daily Briefing

Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews Sponsored by MarketViews

Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews Sponsored by MarketViews

Sponsored by MarketViews Sponsored by MarketViews Sponsored by MarketViews Sponsored by MarketViews

Sponsored by MarketViews Sponsored by MarketViews Sponsored by Clarity AI Sponsored by MarketViews

Information you can trust

Thomson Reuters Products

Westlaw Onesource Checkpoint

Refinitiv Workspace Refinitiv Data Catalogue Refinitiv World-Check

Advertise With Us Advertising Guidelines

Cookies Terms of Use Privacy Digital Accessibility Corrections Site Feedback

© 2022 Reuters. All rights reserved

You might also like