Evergrande China property giant misses debt adline

Evergrande: China property giant misses debt deadline

Before its debt crisis, Evergrande was building a new stadium for its football team, Guangzhou FC

A crisis at the worlds most indebted company has worsened after news it had missed a crucial repayment deadline.

Chinese property giant Evergrande, whose liabilities exceed $300bn (228bn), failed to meet interest payments to international investors.

That prompted Fitch, an agency that rates companies financial risk, to declare Evergrande in default.

The crisis has spooked investors who fear contagion across Chinas property and banking sectors.

Evergrande had been due to repay interest on about $1.2bn of international loans on Monday. But by Wednesday the money had still not been transferred.

On Thursday, Fitch, one the worlds biggest credit rating agencies, declared Evergrande in default, a move that could hamper the companys restructuring talks with investors.

Fitch, whose risk ratings are closely followed by major investors seeking to deploy billions of dollars, said it contacted Evergrande about the non-payment but received no response. We are therefore assuming they were not paid, it said.

Evergrande has been selling assets in recent months to raise the money it owes to customers, investors and suppliers.

In a statement last Friday the company said it could not guarantee to perform its financial obligations, sending its share price crashing.

Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China.

Evergrande Real Estate currently owns more than 1,300 projects in more than 280 cities across China.

The broader Evergrande Group now encompasses far more than just real estate development.

Its businesses range from wealth management, making electric cars and food and drink manufacturing. It even owns one of countrys biggest football teams - Guangzhou FC.

Mr Hui was once Asias richest person and, despite seeing his wealth plummet in recent months, has a personal fortune of more than $10bn (7.3bn), according to Forbes.

Evergrande expanded aggressively to become one of Chinas biggest companies by borrowing more than $300bn.

Last year, Beijing brought in new rules to control the amount owed by big real estate developers.

The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.

Now, it is struggling to meet the interest payments on its debts.

This uncertainty has seen Evergrandes share price tumble by almost 90% over the last year.

There are several reasons why Evergrandes problems are serious.

Firstly, many people bought property from Evergrande even before building work began. They have paid deposits and could potentially lose that money if it goes bust.

There are also the companies that do business with Evergrande. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.

The third is the potential impact on Chinas financial system: If Evergrande defaults, banks and other lenders may be forced to lend less.

This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.

A credit crunch would be very bad news for the worlds second largest economy, because companies that cant borrow find it difficult to grow, and in some cases are unable to continue operating.

This may also unnerve foreign investors, who could see China as a less attractive place to put their money.

The very serious potential fallout of such a heavily-indebted company collapsing has led some analysts to suggest that Beijing may step in.

The Economist Intelligence Units Mattie Bekink thinks so: Rather than risk disrupting supply chains and enraging homeowners, we think the government will probably find a way to ensure Evergrandes core business survives.

In a post on Chinas chat app and social media platform WeChat, the influential editor-in-chief of state-backed Global Times newspaper Hu Xijin said Evergrande should not rely on a government bailout and instead needs to save itself.

This also chimes with Beijings aim to rein in corporate debt, which means that such a high profile bailout could be seen as setting a bad example.

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