China’s Evergrande News Halts Trading Amid Reports of 300 Billion USD Debt Crisis

Evergrande News

Due to rumors that the chairman of the insolvent Chinese real estate giant Evergrande is being watched by the authorities, shares of the company have been suspended in Hong Kong.

It comes after news that more current and past executives had also been held earlier this week.

The market announcement on Thursday omitted to mention the cause of the trading suspension.

But it represents a new low for the massively indebted real estate conglomerate, which went bankrupt in 2021 and started China’s current real estate market crisis.

As it worked on a multibillion dollar agreement with creditors, the company filed for bankruptcy in New York in August in an effort to protect its US assets.

Just one month after the company’s previous 17-month sanction was lifted, market trading has been halted.

Evergrande, formerly regarded as the most valuable property developer in the world, is at the epicenter of a real estate crisis that jeopardizes the second-largest economy in the world.

The company, which has over $300 billion (£247 billion) in debt, has been frantically trying to generate money by selling assets and shares in order to pay suppliers and creditors.

The majority of Evergrande’s debt is owing to Chinese residents, many of whom are regular individuals whose homes are still under construction.

Due to the property sector’s significant contribution to China’s economy, which accounts for about 25% of its GDP, the firm’s 2021 default on its enormous loans sent shockwaves through the world financial markets.

Other significant developers in the nation have fallen into default during the past year, and many are currently having trouble raising the funds necessary to finish projects.

Why would it be important if Evergrande failed?

Evergrande’s issues are critical for a number of reasons.

First of all, many people purchased real estate from Evergrande even before construction started. If it fails, they can lose the money they have paid in deposits.

There are furthermore the businesses that transact with Evergrande. Construction and design companies, as well as suppliers of materials, are at risk of suffering significant losses that could drive them into bankruptcy.

Thirdly, if Evergrande defaults, banks and other lenders would be compelled to reduce their lending. This might have an effect on China’s financial system.

This could result in a credit crunch, in which businesses find it difficult to obtain loans at reasonable rates.

The second-largest economy in the world would suffer greatly from a credit crunch because businesses that cannot borrow find it impossible to expand and, in some cases, are unable to continue operations.

Foreign investors can become uneasy as a result and think twice about investing in China.

Latest plan

Evergrande announced in July that it had lost a total of 581.9 billion yuan ($79.6 billion; £65.6 billion) during the previous two years.

After applying for US bankruptcy protection, the company has been working on a new repayment plan and appeared to be getting closer to finding a solution.

The company’s most recent strategy called for it to reissue its foreign debt as new bonds that it would have to repay in around 10 years while also giving its creditors stock in the business.

But earlier this week, Evergrande disclosed that Hengda Real Estate, a subsidiary in China, had defaulted on a loan of 4 billion yuan (£449 million; $547 million).

Several current and former executives have reportedly been detained, according to Chinese business news outlet Caixin.

Then on Wednesday, Bloomberg News reported that Hui Ka Yan, also known as Xu Jiayin, the company’s founder, had been arrested earlier this month and was being watched at a certain place.

The story by Bloomberg has not been independently verified by the BBC.

On Thursday, trading was also halted in its two other business divisions, property services and electric car.

According to Lan Wang and Duncan Innes-Ker of Fitch Ratings, “China’s property-sector stress will continue to pose cross-sector credit risks in the near term.”

Even while it has recently resulted in some improvements in broader economic indicators, the government’s moderate policy easing to date is unlikely to drive a significant turnaround in homebuyers’ attitude, according to their analysis.