Money…cheap money, and I blew up the debt, said a fictional character in an imaginary movie that literally summed up the making of the Evergrande crisis. Funny! I shrunk the world…., the protagonist continued, as the entire world stood dwarfed and united by the enormity of the debt crisis that threatened to engulf it in one way or the other.
Whether this debt-crisis episode makes it to the reel world or not, the fiasco will be remembered, not just for the real-life impact it already has had, but also for the unpredictable pace and pattern at which it continues to do so.
Ever since the debt and solvency crisis at China Evergrande, one of the largest property giants in China, exploded on the world scene, it has been sleepless nights for many an investor. It is not only investors who have taken a debt or equity exposure on the group that have suffered, but stakeholders across asset classes and business spectrum have borne the brunt. The potential debt crisis has impacted stock markets, commodity markets, and currency markets worldwide both directly and indirectly.
The Evergrande group is China's second largest property business in terms of sales turnover. As per its website, it is ranked 152 in Fortune Global 500, has total assets of RMB 2.3 trillion, annual sales volume of more than RMB 800 billion, annual profit and tax of over RMB 100 billion and employee count of around 140,000 with 3.3 million job creations per year. It is involved in the development of residential properties, as well as other businesses, including property investment, property management, property construction, new energy vehicle, hotel operation, finance, internet, cultural tourism, and health businesses.
The company's real estate development business relies heavily on debt from banks and investors as well as short term loans from suppliers and property buyers. As per reports, the company's total liabilities are over $300 billion, and it has to pay $37 billion in interest and maturing debt over the next one year. In addition, the company has also reportedly taken advance from property buyers as well as employees.
The Evergrande crisis has triggered an endless debate on the perils of excessive debt, leveraging and the evergreening of a perilous financial position with fresh debt. But what was the immediate trigger for the crisis in a company that was established in 1996?
In 2012, short seller Andrew Left of Citron Research had said that Evergrande was insolvent and would be severely challenged from a liquidity perspective. However, he was banned from trading in Hong Kong and his report was cited as reckless for spreading false information.
In September 2020, as news of a liquidity scare in the company emerged, the company's share price fell almost 25 percent from HKD 17.71 as on Aug 31, 2020 to HKD 13.48 by September 25. Shortly, the prices recovered and markets felt less panicky.
Meanwhile, the Chinese regulators introduced measures to rein the debt binge in China's realty businesses to avert a housing bubble and a disastrous bust. The "three red lines" framework sought to measure businesses against three benchmarks viz; 70 percent ceiling on liabilities to assets, 100 percent cap on net debt to equity, and a cash to short-term borrowing ratio of at least one. Evergrande responded to the forced deleveraging with discounts, non-core business spinoff as well as asset disposal as the new rules practically precluded it from taking up any more debt.
Taking cognizance of the group's debt situation, Fitch Ratings, downgraded the group's bonds to B Negative in June 2021, to CCC+ in July and further to CC in September this year.
The debt-debacle situation precipitated as the company had bond liabilities due last week. While the company did clarify that it had reached an agreement with some of its domestic investors, no clarification was forthcoming from the company on whether it had honored its commitments to its foreign bond-holders. The concern on the group's ability to service debt on time, exacerbated amidst a silence on the group's part, that spooked investors and sent the world's financial and commodity markets into a tizzy last week.
While reports continue to emerge of Chinese officials warning about Evergrande's potential demise, investors continue to hope that the Chinese Govt would not allow the crisis to spin out of control.
Will the Chinese govt prioritize the health of its real estate sector or aim to avert a debt-crisis fueled world financial contagion?
As mentioned in group's website, "Evergrande has its own unique connotation, "ever" for never-ceasing existence through the ages while "grande" for universal growth". In the current context, stakes are high not just for Evergrande, but for investors worldwide.
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May 15, 2026 15:25 ET Apart from the confirmation of Kevin Warsh as the next Fed chair, the main news on the economics front this week included key price data from the U.S. and the first quarter economic growth figures from major economies. Both consumer prices and producer costs have started to reflect the effect of supply shocks due to the Middle East conflict. In Europe, GDP data was in focus, while inflation data from China dominated the news flow in Asia.