Because of the problems of the Chinese real estate developer Evergrande world indices were down on September 20. China's largest real estate developer is due to pay interest on five-year bonds totaling $83.5 million on Sept. 23 with an initial issuance of about $2 million. Interest on the seven-year bonds is due on Wednesday, Sept. 29. The company now has $300 million in debt and investors view the risk of a developer default as systemic.
What happened? Evergrande is the second largest developer in China, worth $500 billion. It is the most debt-burdened developer in the world, with debts amounting to 20% of China's GDP.
On September 23 the company failed to pay $83.5 million in dollar bonds and now the developer has 30 days to pay the money, otherwise it will be declared a default, which could create systemic risks to the global financial system.
Forbes experts citing Bloomberg noted that the U.S. market on September 20 showed the largest daily decline since October 2020.
The Dow Jones was down more than 2.6% and the Nasdaq Composite was down more than 3%. Meanwhile, the VIX, or fear index, reached
its highest level in four months. The S&P500 index was down 1.67% by the end of the day, the Stoxx Europe index was down 1.67%
and the Hong Kong Hang Seng Index was down 3.3% (www.forbes.com).
As for the developer itself, according to Forbes, Evergrande stocks fell to HK$2.2 on Monday, September 20, down 11%, and by another 7% on September 21, for a total of nearly 85% since the beginning of the year. The picture on the developer's bonds looks as follows. According to Revinitiv Eikon, Evergrande bonds are now trading at 25 cents, and their yields have risen sharply. Specifically, according to CNBC, the yield on five-year bonds due March 2022 has risen to 560% from just over 10% (www.forbes.com) (www.cnbc.com).
Fitch Ratings at the end of July downgraded Evergrande by two notches from B to CCC+, which implies the possibility of default, at the same time, due to the failure to reduce debts in an orderly manner, S&P Global downgraded the developer to B-.
For several years, thanks to the growth of the Chinese economy, the developer has been buying up assets and Evergrande's business has successfully developed and prospered. New rules regulating the amount of debt of developers, introduced last year by Beijing, had the effect of making the developer sell its assets at significant discounts to pay the interest on its debts.
According to CNBC, Evergrande is trying to pay off debts, even though it has already warned investors twice that it will not be able to return the money (www.cnbc.com).
What's in Store for China's Largest Developer Evergrande?
