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China Evergrande’s Issues Continue to Dominate Headlines 

China Evergrande Group is on edge of default, and its financial woes are rapidly becoming everyone’s problem. On Monday, global equities declined as investors who previously ignored the situation, sat up, and took notice. 

On Monday, Hong Kong’s Hang Seng index dropped more than 3%. European equities also suffered losses. In the U.S., the Dow Jones Industrial Average fell more than 600 points or 1.8%. The S&P 500 dropped 1.7%. 

The country’s one of the largest property developers has debt due that it can’t pay. The group borrowed extensively to fund its rapid growth. China Evergande’s operations cross over into other industries, including wealth-management products, and electric vehicles. 

It faces an $83.5 million interest payment on September 23 on its March 2022 bonds. The group also faces a $42.5 million payment on September 29 on its March 2024 notes. The property giant currently has some $300 billion in liabilities and only around $15 billion in cash on hand. It also has a large network of loans. September 20 was a deadline for domestic bank loan repayments. Last week, authorities in China warned banks that Evergrande wouldn’t meet these obligations.

Several weeks ago, FitchRatings downgrade China Evergrande’s rating to CC from CCC+ indicating they saw some sort of default as probable. 

 

China Evergrande and investors 

If the China Evergrande Group fails, it would be a major sign of trouble for the country’s indebted property sector. The company’s financial trouble coincides with a general slowdown in China’s property market. If China’s one of the major property developers can’t pay its debts, then its lenders including some of China’s largest banks will come under pressure. 

Such a scenario could make it difficult for companies that need to borrow money from banks and bond markets to access funds. As a result, it would mark the makings of a financial crisis in China and could cause wider instability internationally.  country’s government 

A bad if not the worst-case scenario, would be for the group to completely fail and be totally liquidated. 

The most important indicator for investors to watch in the coming weeks will be coupon payments on Evergrande’s offshore bonds. They would be the most likely trigger for default according to analysts from UBS. 

Some people expect that the country’s government will bail out China Evergande Group in some form. However, the government could allow the group to collapse. 

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