Evergrande has spawned an award-worthy collection of Wall Street memes over the past few weeks as it’s become THE story of the financial world.
Things just seem to be piling on for the Asian conglomerate that’s reported to be the 2nd largest property developer in China, while also holding other subsidiary interests in various sectors. The company has come under fire recently due to the large amount of debt it’s accumulated. The company’s outstanding $305b worth of loans has led to a Fitch Ratings downgrade of Evergrande from ‘C’ to ‘CC’. This is despite Evergrande’s efforts to stock up its liquidity by selling a 20% stake in its subsidiary, Shengjing Bank.
Fitch Ratings might still be cynical because of Evergrande’s recent failure to pay a group of its debtors – the company was due to pay a $47.5m interest payment on Wednesday, which was never received. The Group’s debtors are clearly not pleased and have begun to organize protests on Tencent’s WeChat platform. Their efforts to communicate with each other on the platform, however, were blocked by the app — prompting some to believe that the Chinese government is limiting outcry.
Why it matters
Evergrande’s troubles aren’t just its own — its debt problems have led investors to worry that a potential bankruptcy could spell a downturn in the markets. However, with the lines between private sector and government enterprises in China being so blurred, it’s unclear if the Group’s bondholders extend beyond the Chinese shores.
