In mid-September China’s Evergrande Group, the country’s
second-largest property developer by sales, sparked fear in the global
economy as the company’s market valuation plummeted to an 11-year low.
Global economists have warned that if Evergrande defaults on its debts,
it could start a credit contagion similar to the Lehman Brothers
bankruptcy in 2007. So far, Evergrande has managed to dodge default on
its loans three times in the past month, but Evergrande bondholder
Deutsche Marktscreening Agentur (DMSA) seems to be preparing to file for
bankruptcy against the real estate giant.
Credit Contagion Stemming From Real Estate Sector Looms — Evergrande Wobbles, Zillow Falters
The real estate market worldwide has issues and a number of
occurrences have shown that major corporations dealing with properties
are struggling. China’s Evergrande is just one piece of the puzzle as
real estate markets across the globe are feeling a squeeze. For
instance, the major real estate company Zillow revealed
during the first week of November that the firm would stop buying and
renovating properties. Furthermore, Zillow cut 25% of the company’s
workforce as Zillow lost $304 million in Q3 2021.
China’s Evergrande has been wobbling for quite some time and on Wednesday people assumed the real estate giant would default on its bond payments. According to a letter
from the bondholder DMSA, Evergrande failed to meet the interest
payment deadline. Despite the DMSA claims and its attempts to get other
bondholders to file bankruptcy against the Chinese real estate
corporation, a Clearstream representative told Bloomberg that the company had received interest payments and Evergrande deferred default.
US Central Bank Warns Evergrande’s Problems Could Pose Risks to Global Economic Growth
This is the third time
Evergrande has narrowly avoided default in the last 30 days and DMSA is
not the only associated firm complaining. Rival Kaisa Group is one of
Evergrande’s largest bondholders and has already begged for help
from creditors and the Chinese government. No one knows if Beijing will
continue to help Evergrande, but during the last few weeks, the
company’s top executives have been meeting with China’s regulators and
government officials.
Meanwhile, the U.S. Federal Reserve has also warned
that Evergrande’s woes could spread globally if not dealt with soon,
noting: “Stresses in China could strain global financial markets through
a deterioration of risk sentiment, pose risks to global economic
growth, and affect the United States.” As DMSA preps bankruptcy
proceedings, the company’s senior analyst Marco Metzler brought up the
Fed’s warning.
“While the international financial market has so far met the
financial turmoil surrounding the teetering giant Evergrande with a
remarkable basic confidence – one can also say: with remarkable naivety –
the U.S. central bank Fed confirmed our view yesterday,” Metzler
stressed. “In its latest stability report, it explicitly pointed out the
dangers that a collapse of Evergrande could have for the global
financial system,” the DMSA representative said.
Furthermore, the recently published Bloomberg report which quotes the
Clearstream representative also quotes two unnamed Evergrande
bondholders. According to the anonymous sources, Evergrande had
distributed interest payments to them on Wednesday late afternoon (ET).
The sources remained anonymous because “they weren’t authorized to speak
publicly.” Evergrande’s distress has caused speculators to wonder
whether or not the U.S. housing market will be the next to falter,
especially after Zillow’s issues and the median home price in the
country spiking over 25% in five quarters.
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