Major Chinese real estate developer, China Evergrande Group, is likely to default on its financial obligations. This is expected by credit rating agency Standard & Poor’s (S&P).
The world’s leading credit rating agency does not think the Chinese government will provide direct financial assistance to Evergrande.
Evergrande is burdened with a debt load of more than 200 billion euros, and the company has to make repayments on loans and bonds this week. Chinese authorities have already told major lenders that they should not count on bank loans being repaid. S&P believes Beijing will act only to avoid some domino effect from Evergrande’s collapse, hitting other major developers and creating risks to China’s entire financial system.
ING has announced that the loans in China are very limited and that they are not in real estate, but in raw materials and transport, for example. ABN AMRO says it has hardly any presence in China at all. Pensioenfonds ABP states that it concerns a “negligible position” in Evergrande.
The US bank Citigroup thinks Evergrande will not become some kind of ‘Lehman Brothers moment’ for China. Reference is made to the demise of that American investment bank, which was a major driver of the 2008 financial crisis. The US government refused to help Lehman at the time. Citigroup believes China will take action to avert a broader financial crisis, but some banks will fall victim to Evergrande’s bankruptcy.
An ING analyst says the Chinese government has sent a team to Evergrande to help with a restructuring that will see parts sold. The bank points to the complexity of Evergrande, which is also involved in banking and pharmaceutical services. ING expects this restructuring process to take longer.