A Evergrande did not make payment until this Thursday., which included the payment of interest on a bond issued in dollars. According to various sources cited by news agencies such as Reutersat least some of the holders of these bonds indicated that they did not receive any payments – this begins the 30-day count stipulated in the rules of these debt securities, after which “default“, That is, default on debt. To calm financial markets, Christine Lagarde, ECB President, arrived this Thursday to ensure that the “direct impact” on Europe of the Chinese giant will be “limited.”
“I have vivid memories of recent events in the Chinese stock market that have impacted the whole world,” but “in Europe, and in particular in the euro area, direct exposure will be limited.“, – said the person in charge in an interview with CNBC.” At the moment, we see impact and impact focused on China“, Lagarde added, while the ECB is closely monitoring the situation, given the interconnectedness of financial markets on the planet.
Despite Christine Lagarde’s assurances, the end of the week is going negative for global stock markets. The Frankfurt DAX 30 is down 0.8% and US stock futures also indicate a negative opening, although there could be other factors, such as uncertainty over the German elections this Sunday or confirmation in the US, which the Federal Reserve said system, “soon” conditions to reduce the monetary stimulus of the economy.
Group President Xu Jiayin, considered one of China’s greatest fortunes, stressed on Wednesday night that the group should “do my best to honor»Your obligations. The payout, scheduled for this Thursday, was $ 83.5 million in USD-denominated bonds. Other significant refunds will need to be made in the next few days. However, according to the current rules, if the payment is not made on time, the company will be considered unfulfilled (formally) only after 30 days.
According to the financial press in the United States, the central government has already asked regional governments to “prepare for the storm” that will lead to eventual bankruptcy. Among the risks that should be taken care of is “social instability,” that is, massive protests from victims who may lose the savings they have invested in Evergrande – be it real assets that could be depreciated, or, above all, financial instruments that were posted at Evergrande. retail trade with big money promises (up to 13%), Gucci bags and Dyson air fresheners… This is how huge cash flows, alien to banking regulation, were created, which feed the so-called Chinese “shadow bank”.
Evergrande is one of the largest debtors in the world, sitting on a mountain of loans equivalent to $ 305 billion or € 260 billion. As these debts come to maturity, they become more difficult to pay off – financial pressures are “colossal,” Evergrande admitted, blaming newspapers and the press for “negative news” that is dampening the group’s sales (and presumably limiting sales). down money supplies received in exchange for investment products that he distributes to citizens).
But a survey conducted this week by Deutsche Bank among its institutional investor clients found on Tuesday that “only 8% of respondents believe that Evergrande could have a significant negative impact on global financial markets, with 68% expecting“ no impact or limited exposure. “
But Evergrande is a symbol of an economic model that some economists say is numbered: over-construction and astronomical debt. The company’s problems are not just its own, they are a reflection of an unbalanced development model – it is in the real estate sector in China that almost 30% of the country’s gross domestic product (GDP) is generated, and now it is the risk that activities will cease to be the engine of growth, will become a burden.
“We continue to believe that the importance of Evergrande lies not in the fact that it could be a trigger that could trigger a systemic crisis, but rather in an alarming extrapolation that could be made to the future growth prospects of the Chinese economy with the corresponding consequences. … for global growth, ”said a group of economists at the Dutch Rabobank led by Richard McGuire.
