The Evergrande Saga — What Are The Implications?

We’re obsessed with the Evergrande saga and its effects on the global market. We’ll give a bit of an intro and analysis on that, then we’ll dip into some of the key fundamental events happening this week. Ready?

Hold up, what’s this about again?

Evergrande is a debt-laden (to put it mildly!) Chinese property giant. It’s China’s second-largest property developer and one of the country’s biggest private-sector companies, boasting over 200,000 employees, working on 1,300 projects within 280 cities. The company has amassed a quite ridiculous total debt of about $305 billion.

It’s totally run out of cash and investors are starting to get tetchy that the company’s total demise could pose a serious, widespread risk to China’s financial system. Which could also massively impact global markets.

Evergrande stock, 2021

Source: Google

How on Earth did they clock up all that debt?

Good question.

Evergrande grew rapidly after its foundstion in 1996. Loan-supported land-buying sprees combined with quickly selling off apartments at low margins was a very profitable business.

Nothing lasts forever, though, and slowing growth saw the company diversify into businesses such as insurance, bottled water, football and electric vehicles. Eclectic to say the least!

Last year, the company reportedly sent a letter to the provincial government of Guangdong, warning officials that some payments due in January 2021 could cause a liquidity crisis. This sent stock and bonds tumbling. They managed to avert a major crisis then, but any kind of recovery has totally stalled since.

What are the implications of this all going kaput?

A Thursday deadline for paying $83.5m in bond interest passed without remark from Evergrande, and bondholders had not been paid nor had they heard from the company.

The real issue is those liabilities and who they’re owed to. Last year’s letter showed that Evergrande’s liabilities involved as many as 128 banks and over 121 non-banking institutions. Wow.

Any later than planned repayments could trigger cross-defaults, which, at this scale, would really tip things over the edge.

The company has also invested billions in overseas developments in places like the US, the UK, Sweden, the Netherlands, and Germany. If things continue to go wobbly, expect some seriously hefty fallout.

What’s your prediction?

What do you think will happen with Evergrande? Tweet us your thoughts at @_contentworks; and if you’re looking for regular and insightful fintech marketing content, please consider following us!

What’s on the trading agenda this week?

A busy week lies ahead for the currency markets. Here are all of the top events to take note of.

Monday

● USD — Durable Goods Orders MoM (AUG)

Tuesday

● EUR — GfK Consumer Confidence (OCT)

● USD — CB Consumer Confidence (SEP)

Wednesday

No major events scheduled.

Thursday

● GBP — GDP Growth Rate YoY Final (Q2)

● EUR — German Unemployment Change (SEP); German Unemployment Rate (SEP)

Friday

● EUR — Core Inflation Rate YoY Flash (SEP)

● USD — Core PCE Price Index YoY (AUG); Markit Manufacturing PMI Final (SEP); ISM Manufacturing PMI (SEP); Michigan Consumer Sentiment Final (SEP)

Here at Contentworks we closely follow market movements and prep content that we think your traders would love to read. Let’s get you started right here.

Speak soon!

The Contentworks team