In mid-September China’s Evergrande Group, the country’s second-largest property developer by sales, sparked fear in the global economy as the company’s market valuation plummeted to an 11-year low. According to global economists, Evergrande could become a new credit contagion in the same way that Lehman Brothers’ bankruptcy of 2007 could occur if it defaults on its debts. Evergrande is currently in good standing, having avoided default three times over the last month. However, Evergrande bondholder Deutsche Marktscreening Agentur seems to be preparing for bankruptcy.
Credit Contagion Stemming From Real Estate Sector Looms — Evergrande Wobbles, Zillow Falters
Global real estate markets are experiencing problems. Numerous occurrences show that many major companies dealing with property have been in financial trouble. China’s Evergrande is just one piece of the puzzle as real estate markets across the globe are feeling a squeeze. Zillow was one example. It announced in the first week November that they would no longer be renovating or buying properties. Furthermore, Zillow cut 25% of the company’s workforce as Zillow lost $304 million in Q3 2021.
Reports from around the world #EvergrandeThis is extremely troubling. While one group pushes, it has avoided default. #DMSAIt means they, the bondholders have not received any payment. Additional precautions are required. I am out. They might want big men to tell the truth before they sell.
— Raymond Taptuè (@RaymondTaptue1) November 11, 2021
China’s Evergrande has been wobbling for quite some time and on Wednesday people assumedReal estate firm Evergrande would default in its bond payments. A letter from the bondholder DMSA stated that Evergrande had failed to pay the interest payments by the due date. Clearstream Representative told Bloomberg that Evergrande was in default despite claims by DMSA, and other attempts by DMSA to have bondholders file bankruptcy against this Chinese real estate company.
US Central Bank Warns Evergrande’s Problems Could Pose Risks to Global Economic Growth
Evergrande is now in danger of default for the third consecutive time within the past 30 days. DMSA isn’t the only association firm to be complaining. Rival Kaisa Group is one of Evergrande’s largest bondholders and has already begged for helpFrom creditors and the Chinese government. No one knows if Beijing will continue to help Evergrande, but during the last few weeks, the company’s top executives have been meeting with China’s regulators and government officials.
#EvergrandeAnother story about moral hazards and misbehavior is’s.
China & US are much alike than they think. Human Nature does not recognize borders.
— Andres Pineda (@andresp1neda) November 11, 2021
Meanwhile, the U.S. Federal Reserve has also warned that Evergrande’s woes could spread globally if not dealt with soon, noting: “Stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.” As DMSA preps bankruptcy proceedings, the company’s senior analyst Marco Metzler brought up the Fed’s warning.
“While the international financial market has so far met the financial turmoil surrounding the teetering giant Evergrande with a remarkable basic confidence – one can also say: with remarkable naivety – the U.S. central bank Fed confirmed our view yesterday,” Metzler stressed. “In its latest stability report, it explicitly pointed out the dangers that a collapse of Evergrande could have for the global financial system,” the DMSA representative said.
The media now says that #EvergrandeThey made interest payments and they didn’t default
DMSA does not say otherwise
The media is trying to extract every penny from Evergrande, and I do not trust them.
— Batman Stonks (@StonksBatman) November 11, 2021
The Bloomberg Report, which recently appeared, also quotes the Clearstream representative and two Evergrande bondholders. Anonymous sources claim that Evergrande distributed interest payments on Wednesday afternoon (ET) to these bondholders. The sources remained anonymous because “they weren’t authorized to speak publicly.” Evergrande’s distress has caused speculators to wonder whether or not the U.S. housing market will be the next to falter, especially after Zillow’s issues and the median home price in the country spiking over 25% in five quarters.
How do you feel about Evergrande bondholders’ problems and possible credit contagion? Please comment below to let us know your thoughts on this topic.
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