EARLY last week, both Chinese and Hong Kong stock markets were closed for the mooncake festival when regional markets fell due to the fear of contagion from Evergrande crisis.
China’s Evergrande Group is facing a US$3 billion in bond repayment and sinking in debt crisis. Analysts and investors are worried of default and begin to flee from financial capital markets.
On Thursday, the Chinese and Hong Kong markets recovered and surged from the slid on previous day. Despite market analysts are guessing if the embattled Chinese giant developer can honor the repayment of large amount in dollar-denominated interest, shares of other Hong Kong-listed Chinese property developers were also up, such as China Vanke jumped 5.28 per cent, while Sun Hung Kai was up more than one per cent. Country Garden soared 7.15 per cent.
Technically, some talks have gone viral in market that worry a potential market collapse might be triggered from China Evergrande Group just like the US Investment Bank Lehman Brothers in 2008.
Nevertheless, this is not comparable as Evergrande holds large amount of physical assets while Lehman Brothers held all financial assets back then. In simple explanation, Evergrande will be able to get their cashflow if the company can finish its development projects or sell part of these physical portfolio to increase liquidity.
Fundamentally, Evergrande has been growing very rapidly over last decade from increasing high leverages in developing real estates in China. Till date, this giant company is probably the largest land bank in China among all private enterprises.
Sometime in 2020, the Chinese government has announced a tremendous effort to cool down property prices and demand fever by implementing many banking restrictions and policy measures. Since then, China Evergrande Group has fallen almost 90 per cent in its share prices till now.
In such a dreadful situation, the only survival for this giant developer to move on its business will probably facing a financial crunch till the crisis becomes irreversible or perhaps, consider loading off some of its assets to the cash-rich state enterprises in China.
By doing so, the financial sufferings will be alleviated by cutting losses on some redundant portfolio. The Chinese government will be happy to take over some of these assets so they can manage the unwanted risk and regulate the housing prices more meaningfully to the commo folks.
After all, the containment of housing price inflation for more than 500 million families and prestigious properties for expatriates will not be an easy task and unwilling by private developers. Anyway, we do not foresee the Evergrande crisis will balloon intro a global eruption.
Dar Wong is a professional in financial industry since 1989. The expressions are solely his own. He can be reached at [email protected].