Will China sink under the weight of Evergrande's debt pile?
That is the question asked by market watchers over the last couple of days. Evergrande - China's second largest real estate developer, is increasingly looking like it is heading toward collapse.
100 disgruntled investors stormed the Shenzen headquarters early this week demanding repayments of loans. It has some $300b (USD) of debt outstanding to mum and dad investors, as well as banks, and other professional lenders within China and abroad. There are some critical payments due at the end of this month (23rd, 29th September and 11th October), and missing these will likely trigger other events.
In a statement, the company said they are facing "unprecedented difficulties", and given the firm has completed nearly 1,300 commercial, residential, and infrastructure projects and employs some 200,000 people... a collapse is likely to have wide implications.
The company has appointed financial advisers to liquidate some assets to meet financial obligations, but assets like property or half finished constructions are not overly liquid. Real Estate in China represents almost 1/3 of economic output, and any bankruptcy in the sector is likely to create havoc. Evergrande's Hong Kong listed shares fell 10% this week, after falling almost 80% since the start of the year.
UBS in a recent note expect to see a high degree of contagion as investors get very low recovery values, a domino effect of credit events for banks, and if a full liquidation was to occur - it could make foreign investors question other Chinese domiciled companies and their debts.
Billionaire hedge fund investor George Soros wrote in the Financial Times that China's economy could crash if Evergrande defaulted - such is the magnitude of the issue.