Evergrande Financial Panic - Corona is not the only Contagion China is exporting

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jje100010001 said:
Yeah, apparently there was a followup that the debt payment came through later?

Happenings off, I suppose.
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So it seems, for now, yeah.
www.reuters.com

Evergrande dodges default again; property sector debt concerns linger

Cash-strapped developer China Evergrande Group once again averted a destabilising default with a last minute bond payment but the reprieve did little to alleviate strains in the country's wider property sector.
www.reuters.com www.reuters.com

I thought it was odd. They already had the lion's share of the money to pay this latest repayment. They would've ended up defaulting over a difference of $2 million, which is fuck-all at the scale that we're talking.

RainwaterDrop said:
Isn't that less than a single percent of their debt? If they couldn't pay this off, say goodbye to the rest lol!
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Exactly. That really is the crux here. They're stumbling on literal chump-change bond interest repayments. What the fuck are they going to do when the billion dollar bond actually matures in April?

Evergrande is already dead.
 
George Lucas said:
Prediction: they will never actually default. They will barely scrape by continuing to make minimum payments by God’s grace because the People’s Republic of China is such a blessed, Christian nation.
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They literally have to default at some point. If the billion dollar bond maturity come April 2022 doesn't fuck them, then the next bond maturity will. The longer they delay this the more time that investors will have to pull out. They're bleeding capital the longer this farce goes on.

They're struggling to make piddly interest repayments, And keep in mind that while they're busy selling off assets to scrounge up capital so that they can make these repayments, they're not actually doing anything that their company is supposed to be doing (i.e. finishing apartments, paying their employees and generating wealth). They're in survival mode, which means that no actual business is happening.

Sure, Xi might end up bailing them and their Chinese creditors out after all, but Evergrande is absolutely defaulting on one of the loans before that happens.
 
Is their debt in dollars? Maybe America imploding can make that debt cheaper?
 
Lord of the Large Pants said:
Alright, stupid question time... how did this happen? Like, how do you end up in THAT MUCH debt?
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Decades of GDP growth targets by the CCP for political purposes. The CCP pegged its legitimacy between 1989 and 2018 to economic growth and prosperity, and pursued extreme cheap money policies to hit those targets. During the early decades this was good because an undeveloped country can become enormously productive via investment into infrastructure and industry, but by the 2010s most of the 'easy' development had already been covered and the avenues left for growth all involved democratizing the economy and allowing for small, agile firms to disrupt conventional industry (read: government-picked winners). The CCP absolutely could not allow this to happen as it would undermine their system of political patronage.

Starting around 2018, Xi made moves to consolidate power unto himself and aggressively move the country towards autocracy. The result of this was that the CCP began to put stronger restrictions on lending to curb money creation and attempt to stabilize the economy. Companies like Evergrande were only ever structured to operate in the Chinese cheap money boom economy and so these changes have effectively turned them into debt bombs the government will have to absorb as part of its increasing lockdown.

Fun tidbit about debt-driven growth - during the peak of the 2008 crisis when the US was spending like mad to keep the economy afloat, it cost roughly $1 of debt to create $1 of GDP growth. In the mid-2010s, pre-COVID spending when the economy was doing 'good', China was probably borrowing $3 or $4 to create $1 of GDP growth. I say 'probably' because precise numbers are hard to come by, but we do know that debt growth was outstripping GDP growth.
 
Lord of the Large Pants said:
Alright, stupid question time... how did this happen? Like, how do you end up in THAT MUCH debt?
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An excellent risk department, of course. Finest risk management work I've seen in a long time. Same goes for the bondholders by the way. It's a very profitable time for all involved.

Oh no, wait, they're losing a bunch of money. Not us though..
 
Lord of the Large Pants said:
Alright, stupid question time... how did this happen? Like, how do you end up in THAT MUCH debt?
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Evergrande is literally a Ponzi scheme, that's how. It's all bluster and empty promises, and then you reel in new suckers to pay back the previous investors and make it look like your company is super-profitable. This spurs market excitement, and the cycle repeats: you draw in more and more suckers that give you more and more money expecting outrageous returns. But it's all bullshit.

(Also worth noting, because it's hilarious, is that they're only in this little debt because Xi stepped in and said no company was allowed to be in this much debt ever. If that hadn't happened, they'd still be digging the hole as we speak.)
 
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