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China Evergrande Group EGRNF -6.10%
last month it missed an expected interest payment to foreign bondholders, suggesting that October could result in one of the biggest defaults in years.
Investors grappled with unknowns including what the Chinese government might do in response. Beijing has signaled that it is preparing to cushion the blow to national interests. This could include potential help for Chinese investors, banks, Evergrande suppliers, and home buyers who have pledged financially for homes that have yet to be completed.
Evergrande and the real estate sector in general are important cogs in the Chinese economy, and the overheated real estate market was already showing signs of slowing down. At the same time, few analysts expect good news for the foreign owners of the company’s dollar bonds.
Evergrande said last month it hired financial advisers and said defaulting was a risk.
The real estate bubble in China
Analysts have generally indicated that an Evergrande default will not trigger a crisis of confidence like the one that followed the collapse of Lehman Brothers. But Evergrande has been the biggest real estate developer in a growing Chinese real estate bubble for years. Investments over the past decade in China’s residential real estate market eclipsed the US housing bubble of the 2000s, at least in terms of the share of national economic output.
Investment in residential real estate, annual
China in 2020
$ 1.6 trillion
United States in 2005
847 billion dollars
Investment in residential real estate, annual
China in 2020
$ 1.6 trillion
United States in 2005
847 billion dollars
Investment in residential real estate, annual
China in 2020
$ 1.6 trillion
United States in 2005
847 billion dollars
Investment in residential real estate, annual
China in 2020
$ 1.6 trillion
United States in 2005
847 billion dollars
China in 2020
$ 1.6 trillion
Investment in residential real estate, annual
United States in 2005
847 billion dollars
China in 2020
$ 1.6 trillion
Investment
in residential
real estate annual
United States in 2005
847 billion dollars
China in 2020
$ 1.6 trillion
Investment
in residential
real estate annual
United States in 2005
847 billion dollars
Construction boom
The scale of Evergrande’s ambitions was astounding. At the end of last year, the real estate developer had more than 700 projects under construction, covering 132 million square meters of total floor area. For comparison, the total area of the Empire State Building is approximately 257,000 square meters.
The floor space of Evergrande’s construction projects is roughly equivalent to 513 Empire State Buildings.
Note: Based on Evergrande’s 132 million square meters of gross floor area in projects under construction at the end of 2020 and Empire State Building’s floor area of 257,211 square meters
Sources: Evergrande; Empire State Real Estate Trust
The floor space of Evergrande’s construction projects is roughly equivalent to 513 Empire State Buildings.
Note: Based on Evergrande’s 132 million square meters of gross floor area in projects under construction at the end of 2020 and Empire State Building’s floor area of 257,211 square meters
Sources: Evergrande; Empire State Real Estate Trust
The floor space of Evergrande’s construction projects is roughly equivalent to 513 Empire State Buildings.
Note: Based on Evergrande’s 132 million square meters of gross floor area in projects under construction at the end of 2020 and Empire State Building’s floor area of 257,211 square meters
Sources: Evergrande; Empire State Real Estate Trust
The floor space of Evergrande’s construction projects is roughly equivalent to 513 Empire State Buildings.
Note: Based on Evergrande’s 132 million square meters of gross floor area in projects under construction at the end of 2020 and Empire State Building’s floor area of 257,211 square meters
Sources: Evergrande; Empire State Real Estate Trust
The floor space of Evergrande’s construction projects is roughly equivalent to 513 Empire State Buildings.
Note: Based on Evergrande’s 132 million square meters of gross floor area in projects under construction at the end of 2020 and Empire State Building’s floor area of 257,211 square meters
Sources: Evergrande; Empire State Real Estate Trust
An Evergrande housing estate in Beijing. Over the past decade, investment in China’s residential real estate market has eclipsed the US housing bubble of the 2000s.
Photo:
Associated Press
Part of the uncertainty surrounding Evergrande’s struggles stems from its sales practices. Evergrande sold many homes before they were completed. By mid-year, the company had pre-sold around 1.4 million individual properties with a total value of around $ 200 billion.
Rising demand
Another sign of the magnitude of the housing boom in China: house price-to-income ratios in major Chinese cities make New York, London and Paris appear cheap.
Bills to pay
At the heart of this crisis is Evergrande’s mountain of debt, which stood at around $ 304 billion by the middle of this year. This included $ 89 billion in outstanding debt, 42% of which was due in less than a year.
The company’s borrowings include nearly $ 20 billion in dollar-denominated bonds. On September 23, he failed to pay $ 83.5 million in interest on that offshore debt, leaving foreign investors to weigh their options for recourse. Evergrande has a grace period of 30 days before its non-payment constitutes a default in payment of its obligations.
Evergrande’s $ 304 billion in liabilities
Chinese yuan debt
$ 67.6 billion
Includes amounts owed to third parties
such as suppliers and contractors,
payroll and other debts
Understand
taxes and others
Liabilities
US dollar debt
$ 20.0 billion
Hong Kong dollar debt: $ 1 billion
Chinese yuan debt
$ 67.6 billion
Includes amounts owed to third parties
such as suppliers and contractors,
payroll and other debts
Understand
taxes and others
Liabilities
US dollar debt
$ 20.0 billion
Hong Kong dollar debt: $ 1 billion
Chinese yuan debt
$ 67.6 billion
Includes amounts owed to third parties
such as suppliers and contractors,
payroll and other debts
Understand
taxes and others
Liabilities
US dollar debt
$ 20.0 billion
Hong Kong dollar debt: $ 1 billion
Chinese
debt in yuan
$ 67.6 billion
Includes amounts due
to third parties such as
suppliers and contractors,
payroll and other debts
Understand
tax and
other
Liabilities
US dollar debt
$ 20.0 billion
Hong Kong dollar debt: $ 1 billion
Chinese
debt in yuan
$ 67.6 billion
Includes money
due to third parties
such as suppliers and
contractors payroll
and other debts
Understand
tax and
other
Liabilities
we
dollar debt
$ 20.0 billion
Hong Kong dollar debt: $ 1 billion
Evergrande on Wednesday said it has reached a deal with a Chinese state-owned company to sell most of its stake in a commercial bank for $ 1.5 billion, a sign that the country’s authorities are trying to help the property developer deal with its crisis. debt.
Many analysts say an Evergrande default is unlikely to cause a full-scale crisis of confidence.
Photo:
Getty Images
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