For Evergrande, the second Chinese real estate company, the bloodletting is continuous, even a large investor like Joseph Lau through his wife Chan Hoi Wan has sold 11.2 million shares. A bad sign for the group caught between the impossibility of failing without dragging all Chinese real estate into the abyss and the difficulty of developing a new restructuring plan. Central authorities have clearly admitted that there will be no bailout but at the same time that Evergrande must not fail in essence.
Financial terror runs on the brick
China boasts a 54 trillion dollar financial market that could be seriously jeopardized by the bankruptcy of Evergrande, the second major Chinese developer now on the verge of default. Three hundred billion dollars of debt accumulated so far, double in coupons to be paid and 84 billion due on 23 September.
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The central authorities seem to have decidedly chosen the path of no to failure even if Evergrande has been described as “not too big to fail”. Meanwhile, small investors are surrounding Evergrande offices across China, not just in the Shenzhen headquarters anymore, and for this reason an uncontrolled default would set fire to the dust of social protest.
Obviously, a crash of this magnitude would be disastrous and for this reason Beijing wants to avoid involving commercial banks in a rescue operation that would only be in time. Better to arrange a restructuring of the holding which, however, is looming as the most complex in Chinese history.
A holding that has grown out of all proportion
The first problem is the sprawling size, Evergrande was founded in the mid-eighties by the historic chairman Hui Ka Yan, today it boasts 1,300 projects in 280 cities in China but has expanded to the most varied activities from football to electric cars.