A court in Hong Kong has declared the Chinese property company Evergrande bankrupt. Pål Ringholm, an expert on China’s debt-ridden property sector, is not surprised.
Pål Ringholm, here from an earlier interview. Photo: Siv DolmenPublished:
Yesterday 10:40
Updated yesterday 11:03
Investment director Pål Ringholm at the Pension Fund for the health enterprises has been following Evergrande and other indebted Chinese real estate players very closely for a long time. He has a background as head of analysis for the credit department at Sparebank 1 Markets and from Swedbank.
– I have been waiting for this for ten years, says Ringholm to E24.
In other words, Ringholm is well prepared for bankruptcy. He believes the market is too.
– If someone has been on their deathbed, in this case since December 2021, then it will not be a shock to the family when death finally occurs.
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The decision comes after Evergrande was unable to agree with creditors according to the Bloomberg are several years of negotiations.
Evergrande is according CNBC the world‘s most indebted property developer. The company defaulted on debt in 2021, before announcing a plan to restructure its debt last March.
The debt is according to Financial Times of more than 300 billion dollars. The amount corresponds to over NOK 3,100 billion.
– Enough is enough
The future has been uncertain for the company, after it was petitioned for liquidation by a creditor and the fate date was postponed several times.
– It is time for the court to say that enough is enough, according to judge Linda Chan Reuters.
China’s real estate sector has been under pressure over time, and several companies have had problems paying debts in recent years.
Ringholm points out that Evergrande’s foreign debt has been traded at a discount of 98.5 per cent ahead of the incident. In other words:
– International investors who have lent money to what was the world‘s largest real estate company, have known very well that here we will not get the money back, says Ringholm.
Ringholm points out that it is a court in Hong Kong that has bankrupted the company. An unanswered question now is how the Chinese authorities will deal with the decision. He says we don’t have much experience from similar situations.
– Those outside China who lent money to the company will, I believe, lose the money. The question is how domestic investors are treated. The ordinary Chinese have paid in advance, so that it becomes a debt for the company.
The people do not want to lose money from the bankruptcy, as it will create too many social problems in China, believes Ringholm.
– I would like to believe that the authorities will ensure that a family that has put money into, and waited for, an apartment, will either have the apartment built or get the money back.
“Giants on feet of clay”
Ringholm refers to the large debt-laden Chinese property companies as “giants on clay feet”.
The decision of the court in Hong Kong does not currently appear to send shock waves through the stock markets. In both China and Hong Kong, the stock exchanges are unchanged on Monday morning.
The Evergrande logo on an apartment building in the Chinese city of Nanjing Photo: STRINGER / AFP via NTB
Ringholm does not believe that the Evergrande incident in itself will create major market movements.
– At the start, a couple of us took a dark view of it, but now most people have realized that the company has had problems, says Ringholm.
Chinese authorities tightened the regulation of property companies, when a few years ago they set requirements for equity capital and profitability.
– It contributed to the bubble bursting or continuing to burst. Too many empty apartments have been built, and that cannot go on forever.
Ringholm does not think Evergrande will be the last victim and singles out property company Country Garden as a current candidate. Among other things, the company is behind a ghost town international investors have been drooling over.
– Never became a “Lehman moment”
Evergrande’s share price fell more than 20 percent on Monday, before trading was halted.
Senior economist Kelly Chen at DNB Markets specializes in the Chinese economy.
She also points out that Evergrande was on the brink of bankruptcy many years ago. The fear has previously been that there could be a fire sale of the company’s assets.
– It was feared that there would be large sales of unfinished homes and plots of land that would come on the market and crash house prices.
However, the authorities have done what they can to prevent it, according to Chen.
– There was never a “Lehman moment” Lehman moment refers to the bankruptcy of the American investment bank Lehman Brothers in 2008. A situation where the problems of a company or an apparently smaller part of the economy turn out to be so big that it becomes everyone’s problem. », when the company defaulted on the debt. House prices in China have fallen, but with a much slower decline than feared.
Kelly Chen, senior economist at DNB Markets Photo: Stig B. Fiksdal
Can take strong action
Chen explains that the authorities in China are able to control market movements to a much greater extent than we are used to here at home.
– State-owned companies can go directly in and buy shares in the market, and in that way prevent large price falls. This has been called the “national team” of China.
– When it comes to housing, there has been an opportunity to limit the fall in housing prices, simply by refusing to allow trade to go through if the price is outside the set limits.
According to Chen, many potential home buyers have stayed out of the market for a long time.
– As a result, a significant savings buffer has also accumulated. The surplus savings in the households’ bank accounts is close to 17,000 billion yuan, corresponding to 15 percent of last year’s GDP. There are enormous sums that will not disappear.
The amount corresponds to approximately NOK 24,600 billion.
– For me, this means that there may be an improvement in the housing market eventually.
Chen says that this requires house prices to find a bottom.
– It can be a long process when the authorities limit housing sales as they do now. It also means that the authorities will probably have to start with even more support measures this year to attract more home buyers back into the market, says Chen.