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December 10, 2021By Origin Ten LTD12 Minutes

Evergrande (finally) Defaults: Can China’s Economy Survive? – TLDR News By TLDR News Global


Hello and welcome to another. Tldr Global video. In this one. We’re going to be taking a look at ever G. Recent default and whether the collapse of China’s real estate Behemoth, could contaminate not just the Chinese property sector, but Chinese government financing more. Generally if you want to support the channel and get a great Christmas gift. Then check out our countries with shoes pin badges. We have pins featuring our iconic designs, including the China pin, and the global pins, the link to the store is down below.

So let’s get into it. We’ve done videos on evergrande before. So if you want more detail on evergrande, specifically go watch those. This video is going to focus more on the recent news that ever Grant has now. Defaulted on an 83 million dollar offshore Bond payment, as a brief overview. For those of you who can’t be bothered to watch. Our previous video. Ever Grande is a massive Chinese property developer for years. It’s basically been a massive Ponzi scheme, borrowing more money than it can afford, and then borrowing,

More money to pay off its previous borrowing. In total ever Grant has borrowed a massive 300 billion dollars in September. When the Chinese Communist Party, cracked down on excessive borrowing with their three. Red lines evergrande begun to collapse its stock listed on the Hong Kong Stock Exchange fell. 90% from a high of 25. HKD in June 2020 to 2.5 HKD. Now, just because a company loses value.

Doesn’t mean it. Immediately default a default is when a company fails to pay back a loan. IE. Mrs. Of repayment. This can either be an interest payment on a loan, or what’s known, as a principal payment, which is when the company has to pay back, the full value of the loan for the last month or so ever. Grant has managed to make these repayments albeit often a bit late. This is unsurprising really ever granted a massive company with lots of assets. So even if it was losing money, you’d

Backed it to be able to repay some of the money. Even if it was losing money, you’d expect it to be able to pay back some of the repayments. Nonetheless. It was forced into some pretty Extreme Measures to make these repayments. They sold their company Gulfstream. Jet dumped assets at fire sale prices, and the CEO where he Cayenne was even forced to pledge. His Hong Kong Mansion as collateral for a new loan. Nonetheless. This couldn’t go on forever and on Wednesday, Fitch.

Did that ever Grant had defaulted on an 83 million dollar offshore interest payment originally due on November the 6th after the 30 day grace, period, expired, evergrande, share, tumbled to a new low of just 1.73 HKD and their founder was summoned by the CCP. Now, we should say that evergrande themselves didn’t admit to a default. They didn’t say where defaulting on this payment. They just didn’t pay it and didn’t say anything to the bondholders. This

My feature comes in feature a ratings agency and their job is basically to tell investors what’s data companies in for the last year or so, they’ve been constantly downgrading evergrande basically telling their investors that their loans are going to get worse and worse. Finally, on, Wednesday evergrande failed to make the 83 million dollar repayment Fitch declared that evergrande was a restricted default, which is one rating higher than a full default. According to Fitch. This essentially means that while evergrande has defaulted on some of

It’s loans. It hasn’t entered Administration. It’s still functioning as a company. Now. This is probably because evergrande has in some sense. Deliberately missed this repayment essentially evergrande probably has more money sitting about, but under pressure from the CCP, they’ll be giving it to Chinese companies and clients first to try to limit contagion in the Chinese economy, leaving foreign investors out to dry. This is particularly bad news for evergrande because this default could trigger crossed.

Faults on, it’s roughly 19 billion dollars of other offshore bonds across. Default is a provision in a loan that says, if you default on another loan you automatically, default on this loan, essentially, the idea is that all lenders are equally entitled to a borrower’s Assets. In case of default. It would be unfair for the first lender to default to get first dibs on all the assets. For example, you might have a cross default clause on your car loan, which means that if you default on your mortgage,

You automatically default on your car loan and then your car dealer, and your bank, get equal dibs on your assets. Anyway, most International bonds have crossed default Clauses. So it’s likely that by defaulting on this loan ever Grant will have defaulted on a whole load of other loans and you can expect foreign investors to start filing legal proceedings against them. So what happens next? Well, the big question is if ever grants woes will affect the wider Chinese economy evergrande collapse has

Teja other Chinese property developers, Fantasia, and sinec. Have both mystery payments. And cars are was also downgraded by Fitch to restricted default after they failed a 400 million-dollar offshore debt deadline. This is both because ever Grant has Shone a light on Chinese property, developers unsustainable debt, fueled growth models and also, because ever Grant collapse has spooked consumer confidence in the property Market. The Chinese public doesn’t want to buy

Aziz pre-constructed as often happens in China because there’s no guarantee. They’ll even get built and this is significantly per property sales. But the bigger worry, for China’s economy and the CCP will be the effect that evergrande has on local government debt. We’re not going to go into this in too much detail, but essentially, since 1994 local and provincial governments have been responsible for paying for their own social services and meeting growth targets set by Beijing.

For them. Most taxes go straight to Beijing which means they’re underfunded and they’re not technically allowed to borrow money to get around this and to make sure they meet their growth Target. Local government set up local government financing vehicles, or LG fvs, which were basically Shadow companies. Local governments would give those LG fvs land for free and then LG FES could use that land as collateral to borrow money. Investors knew that they were basically lending money to

the local government who had loads of expensive land. So they were pretty happy to lend money at relatively good rates. No one knows precisely how much money local governments have implicitly borrowed via these financing vehicles. But whatever the exact figure it’s probably too much upper end estimates put the total figure at about 30 percent of local government revenue and a total of 30 trillion. Renminbi nearly 40% of GDP, even

Before evergrande they were showing signs of strain in July a regulatory directive known as document 15 went out to Banks telling them to stop loaning money to lgf these but the collapse of the property sector could be their death knell. Local governments rely on land leases for most of their income and LG fvs rely on land values to borrow money. If the Chinese property Market dries up, local governments will see their revenue streams, dry up and borrowing cost increase leaving them.

Unable to service their already inflated loans. This could trigger a wave of defaults across local government, which would amount to a full-blown economic crisis worryingly. Lgf is have already started buying land from local government from July to November the 15th, lgf is accounted for about 13 percent of all land sales, Land by value. Up nearly five, percentage points from the January to June period. This is essentially an accounting trick by local governments. They borrow money.

From Banks via the LG fvs, then by their own land with that money so that they can pretend to Beijing that their loans are actually Revenue. This essentially shows that lgf fees don’t have enough income because they’re struggling to sell land. So the using an accounting trick to pretend everything’s fine. Anyway, you get the point evergrande is defaulting and the company’s collapse could affect not just the over-leveraged property sector, but the over-leveraged public sector accounting.

Eating to a full-blown debt crisis. Now, we should say that no one knows how things will play out. We’re just describing some possible risks, and maybe the CCP will find some way to control the contagion. Nonetheless. These are real risks and worth keeping an eye on in the future. But what do you think? We’ll the CCP be able to control this or is ever G? Recent default proof that things are really going downhill. Let us know your thoughts in the comments below and

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