In mid-September, China’s Evergrande Group, the country’s second-largest property developer in terms of sales, aroused fears in the global economy as the company’s market valuation fell to a low of 11 years. Global economists have warned that if Evergrande defaults on its debt, it could launch a credit crunch similar to the Lehman Brothers bankruptcy in 2007. So far, Evergrande has managed to avoid defaulting on its loans three times in the past month, but Evergrande bondholder Deutsche Marktscreening Agency (DMSA) seems to be preparing to file for bankruptcy against the real estate giant.
Credit transmission stems from the real estate sector’s loom – Evergrande falters, Zillow falters
The real estate market worldwide is having problems and a number of incidents have shown that large companies dealing in real estate are having a hard time. China’s Evergrande is just one piece in the puzzle, as real estate markets across the globe are under pressure. For example, in the first week of November, the large real estate company Zillow revealed that the company would stop buying and renovating properties. In addition, Zillow reduced 25% of the company’s workforce when Zillow lost $ 304 million in Q3 2021.
News reports all around #Evergrande is very worrying. A group presses, it has avoided standard; and on the other hand #DMSA says that they, bondholders, have not received a payment. Additional precautions are required. I’m out. Maybe they want big guys to sell before they tell the truth.
– Raymond Taptuè (@ RaymondTaptue1) November 11, 2021
China’s Evergrande has been meandering for quite some time and Wednesday people assumed The real estate giant would default on its bond payments. According to a letter from bondholder DMSA, Evergrande failed to meet the deadline for interest payments. Despite DMSA claims and its attempts to get other bondholders to file for bankruptcy against the Chinese real estate company, a Clearstream representative told Bloomberg that the company had received interest payments and Evergrande deferred default.
The US Federal Reserve warns that Evergrande’s problems could pose a risk to global economic growth
This is the third time Evergrande has avoided default in the last 30 days and DMSA is not the only associate complaining. Rival Kaisa Group is one of Evergrande’s largest bondholders and already has asked for help from creditors and the Chinese government. No one knows if Beijing will continue to help Evergrande, but over the past few weeks, the company’s top executives have met with China’s regulators and officials.
#Evergrande‘s story is another one about moral danger and incentives that lead to bad behavior.
China and the United States are very similar than they think. Human nature has no boundaries.
– Andres Pineda (@ andresp1neda) November 11, 2021
Meanwhile, the US Federal Reserve has also warned that Evergrande’s problems could spread globally if not addressed quickly, noting: “Stress in China could strain global financial markets through a worsening of risk sentiment, posing risks to global economic growth and affect US states. ” While DMSA is preparing for bankruptcy, the company’s senior analyst Marco Metzler brought up the Fed’s warning.
“While the international financial market has so far faced the financial turmoil surrounding the vibrant giant Evergrande with remarkable basic confidence – one could also say: with remarkable naivety – the US Federal Reserve confirmed our position yesterday,” Metzler stressed. “In its most recent stability report, it explicitly pointed out the dangers that a collapse of Evergrande could have for the global financial system,” the DMSA representative said.
Now the media is saying it #Evergrande did not default because they paid interest
DMSA says otherwise
I do not trust the media, they try to squeeze every penny they can out of Evergrande
– Batman Stonks (@StonksBatman) November 11, 2021
In addition, the recently released Bloomberg report citing the Clearstream representative also cites two unnamed Evergrande bondholders. According to anonymous sources, Evergrande had distributed interest payments to them late Wednesday afternoon (ET). The sources remained anonymous because “they were not authorized to speak in public.” Evergrande’s distress has caused speculators to wonder whether the U.S. housing market will be next to falter, especially after Zillow’s problems and the country’s average house price rose above 25% in five quarters.
What do you think about the problems Evergrande bondholders face and the possibility of a credit crunch? Tell us what you think about this topic in the comments section below.
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