Chinese giant sinks deeper: Shares fell, company collapse would hit financial system hard – HNonline.sk

Shares of a Chinese real estate company Evergrande, which is struggling with financial problems, fell as much as 19 percent during today’s trading on the Hong Kong Stock Exchange and reached its lowest level since May 2010.

Investors are pessimistic about the company’s prospects, while regulators warn that the company’s failure to repay liabilities could cause wider problems in China’s financial sector.

The company’s total liabilities amount to $ 305 billion. The company said on Sunday that it had started paying its investors real estate.

Evergrande is due to pay interest on $ 83.5 million in bonds on Thursday, and another $ 47.5 million to pay next week on Wednesday.

Direct rescue will not come

Politicians have called on big creditors to give Evergrande more time to pay their liabilities.

The opinion prevails among the experts that a direct rescue of the company by the Chinese government is unlikely, Reuters warned.

However, according to the BBC, some analysts believe that Beijing could take some steps to support the company.

“We believe the government is likely to find a way to maintain Evergrande’s core business rather than risk supply chain problems and the anger of homeowners.” said Mattie Benkink of The Economist Intelligence Unit.

Many people bought apartments from Evergrande before construction began. These people paid advances that they could lose in the event of a business collapse.

In addition, Evergrande outsources the work to a group of other companies, such as construction companies and material suppliers. With this business, the collapse of Evergrande could cause large losses, which could result in their bankruptcy.

Tightening of loans

The collapse of Evergrande could also hit the Chinese financial system hard, as it could tighten lending conditions for banks. However, the influential editor-in-chief of the Global Times, Hu Xi’an, wrote in his post on the Wech platform that Evergrande should not rely on government assistance and should work on its own rescue.

Evergrande currently owns more than 1,300 development projects in more than 280 Chinese cities. It also operates in other areas, such as property management or the production of electric cars and beverages.

If Evergrande becomes insolvent, it will have to restructure its debt.

Analysts expect that in such a case, bondholders will get back only a small part of the money invested.

Shares of Evergrande later erased some of the losses and closed trading at about 10 percent. “Shares will continue to decline because there is no solution yet to help the company ease financial tensions. There is also still a lot of uncertainty about how the company will proceed in the event of restructuring.” said one of Canfield Securities analysts.

Evergrande’s problems also have a negative impact on the share prices of other real estate companies in China. They also contribute to the decline in the Chinese yuan, which has fallen to a three-week low against the US dollar.