What is Evergrande? Five things to know about Chinese company on the brink

The troubles of Chinese conglomerate Evergrande have dominated headlines after it warned once again that it could default on its astronomical debt because of a cash crunch.

What is Evergrande? Five things to know about Chinese company on the brink

The troubles of Chinese conglomerate Evergrande have dominated headlines after it warned once again that it could default on its astronomical debt because of a cash crunch.

Experts have characterised the firm's struggles as a major test for Beijing that risks turning into China's Lehman Brothers moment, sending shockwaves across the world's second-biggest economy.

This week could be critical for the company.


It was supposed to repay interest on some bank loans yesterday, according to Bloomberg.

The news outlet recently reported that Chinese authorities have told major banks that they won't receive those payments.

Evergrande did not immediately respond to a request from CNN Business for comment about those payments.

And interest payments totalling more than $137 million are due later this week on two of the company's bonds, according to data provider Refinitiv.

Here's what you need to know about Evergrande, and how it got to where it is now.


What is Evergrande?

Evergrande is one of China's largest real estate developers.

The company is part of the Global 500 — meaning that it's also one of the world's biggest businesses by revenue.

Listed in Hong Kong and based in the southern Chinese city of Shenzhen, it employs about 200,000 people.

It also indirectly helps sustain more than 3.8 million jobs each year.

The group was founded by Chinese billionaire Xu Jiayin, also known as Hui Ka Yan in Cantonese, who was once the country's richest man.

Evergrande made its name in residential property — it boasts that it "owns more than 1300 projects in more than 280 cities" across China — but its interests extend far beyond that.


Outside housing, the group has invested in electric vehicles, sports and theme parks. It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China.

In 2010, the company bought a soccer team, which is now known as Guangzhou Evergrande.

That team has since built what is believed to be the world's biggest soccer school, at a cost of $254 million to Evergrande.

Guangzhou Evergrande continues to reach for new records: It's currently working on creating the world's biggest soccer stadium, assuming that construction is completed next year as expected.

The $2.34 billion site is shaped as a giant lotus flower, and will eventually be able to seat 100,000 spectators.

Evergrande also caters to tourists through its theme park division, Evergrande Fairyland.

Its claim to fame is a massive undertaking called Ocean Flower Island in Hainan, the tropical province in China commonly referred to as the "Chinese Hawaii."

The project includes an artificial island with malls, museums and amusement parks.

According to the group's most recent annual report, it started taking customers on a trial basis earlier this year, with plans for a full opening "at the end of 2021."


How did it run into trouble?

In recent years, Evergrande's debts ballooned as it borrowed to finance its various pursuits.

The group has gained infamy for becoming China's most indebted developer, with more than $412 billion worth of liabilities.

Over the last few weeks, it's warned investors of cash flow issues, saying that it could default if it's unable to raise money quickly.

That warning was underscored last week, when Evergrande disclosed in a stock exchange filing that it was having trouble finding buyers for some of its assets.

In some ways, the company's aggressive ambitions are what landed it in hot water, according to experts.

The group "strayed far from its core business, which is part of how it got into this mess," said Mattie Bekink, China director of the Economist Intelligence Unit.

Goldman Sachs analysts say the company's structure has also made it "difficult to ascertain a more precise picture of [its] recovery."

In a recent note, they pointed to "the complexity of Evergrande Group, and the lack of sufficient information on the company's assets and liabilities."

But the group's struggles are also emblematic of underlying risks in China.

"The story of Evergrande is the story of the deep [and] structural challenges to China's economy related to debt," Ms Bekink said.

The issue isn't entirely new.

Last year, a slew of Chinese state-owned companies defaulted on their loans, raising fears about China's reliance on debt-fuelled investments to support growth.

And in 2018, billionaire Wang Jianlin was forced to downsize his conglomerate, Dalian Wanda, as Beijing clamped down on firms borrowing heavily to push overseas.

In a note last week, Mark Williams, Capital Economics' chief Asia economist, said that Evergrande's collapse "would be the biggest test that China's financial system has faced in years."

"The root of Evergrande's troubles — and those of other highly-leveraged developers — is that residential property demand in China is entering an era of sustained decline," he wrote.

"Evergrande's ongoing collapse has focused attention on the impact a wave of property developer defaults would have on China's growth."

Wall Street

How is it trying to move forward?

On September 14, Evergrande announced that it had brought on financial advisers to help assess the situation.

While those firms are tasked with exploring "all feasible solutions" as quickly as possible, Evergrande has cautioned that nothing is guaranteed.

So far, the conglomerate has struggled to stem the bleeding, and has failed to find buyers for parts of its electric vehicle and property services businesses.

As of that filing, it had made "no material progress" in its search for investors, and "it is uncertain as to whether the group will be able to consummate any such sale," it said.

The company has also been trying to sell off its office tower in Hong Kong, which it bought for about $2.2 billion in 2015.

But that has "not been completed within the expected timetable," it said.

How are investors reacting?

Evergrande's problems spilled onto the streets last week when protests reportedly broke out at its headquarters in Shenzhen.

Footage from Reuters showed scores of demonstrators at the site on Monday, accosting someone identified to be a company representative.

But shareholders have been wary for months: The stock has shed more than 80 per cent of its value this year.

Earlier this month, Fitch and Moody's Investors Services both downgraded Evergrande's credit ratings, citing its liquidity issues. "We view a default of some kind as probable," Fitch wrote in a recent note.

The situation also appears to be spooking investors in China more broadly, at a time when they're already reeling from Beijing's crackdown on private sector companies, particularly in the tech sector. The Hang Seng Index on Monday dropped 3.3 per cent, suffering its worst decline in nearly two months, as Chinese banks, insurers and other real estate companies were slammed.

"In our opinion, how Evergrande credit stresses will be resolved will drive market sentiment," Goldman Sachs analysts wrote recently, referring to the credit market and the broader economy. They added that the Chinese bond market could be hit and a loss of confidence could "spill over to the broader property sector."

Wall Street appears to be more sanguine about the risks of contagion overseas.

"I don't think the Evergrande meltdown, and the financial problems of Chinese property companies more broadly, will reverberate back on the US economy or markets," Mark Zandi, chief economist at Moody's Analytics, told CNN Business last week.

What could happen next?

Analysts expect the Chinese government to intervene to limit the fallout if Evergrande were to default.

And authorities are clearly watching closely, while attempting to project calm.

Last week, Fu Linghui, a spokesperson for China's National Bureau of Statistics, acknowledged the difficulties of "some large real estate companies," according to state media.

Without naming Evergrande directly, Fu said that China's real estate market had remained stable this year but the impact of recent events "on the development of the whole industry needs to be observed."

Williams, of Capital Economics, predicts that the country's central bank "would step in with liquidity support" if fears of a major default intensified.

Authorities are said to be taking action.

Last Tuesday, Bloomberg cited anonymous sources as saying that regulators had enlisted international law firm King & Wood Mallesons, among other advisers, to examine the conglomerate's finances. King & Wood Mallesons declined to comment.

According to the report, officials in Evergrande's home province of Guangdong have already rejected a bailout request from its founder. Guangdong authorities and Evergrande did not respond to a request for comment.

But some suggest it may already be too late to save the company.

Evergrande's financial problems have been widely dubbed by Chinese media as "a huge black hole," implying that no amount of money can resolve the issue.

"We do ultimately expect that the government will intervene in Evergrande's case, as it will not allow the company's defaults to spread into the banking system," Ms Bekink said.

"The impacts from a large default by Evergrande would be remarkable."

Source : 9 News More   

What's Your Reaction?


Next Article

iPhone 13 review: An incremental upgrade with a stunning camera trick

In the less than seven days since Apple announced the iPhone 13 there have been plenty who have called it bland or unimaginative. But what's missing is a look under the hood.

iPhone 13 review: An incremental upgrade with a stunning camera trick

In the less than seven days since Apple announced the iPhone 13 there have been plenty who have called it bland or unimaginative, mainly because it has the same shape and design as last year's iPhone 12.

But what is missing from that commentary is a look under the hood at the iPhone 13 - a stunningly fast smartphone with an advanced camera trick that will impress even the casual observer.


More Power

The inclusion of a new A15 Bionic chip to power the iPhone 13 will make it by Apple's own measure the fastest smartphone on the market, but the reality is you'll barely notice that day to day unless you're playing the most complex games or using the advanced apps being made.

What it does mean is that this phone will be ready for whatever great apps are to come.

Better Battery

But it's not a reason to buy. Battery life is.

Apple says 1.5 hours extra on the iPhone 13 Mini and Pro, and 2.5 hours more on the iPhone 13 and 13 Pro max.

The figures quoted in the specs are even greater, but as always with battery life it depends on what you're doing with the device in your day.

Apple says 1.5 hours extra on the iPhone 13 Mini and Pro, and 2.5 hours more on the iPhone 13 and 13 Pro max.

In my time using the iPhone 13 Pro, I found it offered an absolute all-day battery, but we'll have to wait for lockdown to lift before we really put it to the test.

A different way to connect

Here's something I discovered that wasn't announced in the fancy virtual launch event - Dual eSim support.

Since the iPhone XS Apple has supported dual-SIM connectivity.

That means you can have one SIM card connecting to Telstra, and one to Optus - as an example. You might have a great data plan on one telco and call plan on another, or you have a work number and personal number you want on the one phone.

With the iPhone 13, both numbers can be eSIMs, so you can have two numbers without the use of a physical SIM.

Hopefully this allows easy switching of telcos, but we now need the big networks to allow the smaller telcos like Boost, Kogan or Amaysim to offer eSIM connectivity.

Screen Time

There's a bump in quality on the screen which is noticeable on the Pro models for the additional brightness on offer.

It's incremental but noticeable.

While resolution and quality doesn't change, it's how it shows that's different.

On the Pro models of the iPhone 13 you also get ProMotion on the display.

On the Pro models of the iPhone 13 you also get ProMotion on the display. This is Apple's fancy term for a 120Hz display.

The amount of times the screen refreshes ever second. For fast-moving games it looks great, but in everyday normal use, I didn't notice a huge difference - at all.

Other brands who have introduced 120Hz displays have suffered battery life issues, so I'd be curious to try a few weeks with the ProMotion turned off and see how it fares.

I applaud Apple for introducing 120Hz into iPhone, long overdue, but again, like the processor, not something I see people knocking down the doors of telcos requesting.

All about the camera

Talk about burying the lede - everything about the iPhone is great, but the standout feature of iPhone 13 is the camera.

The Pro and Pro Max models both now offer a 3x optical zoom alongside the wide and ultra-wide lenses. That additional zoom is a nice step up from all previous Pro models.

The standout feature of iPhone 13 is the camera.

Your videos will look smooth and your photos will be less blurry thanks to sensor-shift image stabilisation. Basically, the image sensor is physically moving in the camera to stay stable. This was previously only available on the highest end iPhone 12 Pro Max. In 2021, the technology is available across the iPhone 13 range.

And then, there's Cinematic Mode. This was mind-blowing to play with.

Available on all iPhone 13 models, on the front and rear cameras, the smarts and power of that A15 Bionic chip come into play to analyse your video image and create a blurred effect across the image but for the subject in focus.

It can intelligently recognise and follow faces, and even move from face to face as people turn or move out of the shot. You can also tap the screen on items in the foreground, background or otherwise to focus while recording.

The effect itself is well achieved, I think it could be more accurate in its definition of items, reminds me a lot of the original portrait mode on iPhone 7 but perhaps a whole lot better.

Remarkably, the effect itself is just the start. What really gives this camera award-winning capabilities is the fact you can edit the focal point after the fact.

The Pro and Pro Max models both now offer a 3x optical zoom alongside the wide and ultra-wide lenses.

Once a video is recorded in "Cinematic" mode, it's saved with the depth data in tact. Allowing you to click "Edit" on a compatible Apple device, and choose different focal points as you wish. It really is a stunning effect which we expect to see in use a lot on social media, let alone in the production of high-end content.

Should you buy the iPhone 13?

I really think this should have been called the iPhone 12s. It's an incremental upgrade, a great one at that - but I don't see how it gets a whole new model name.

Battery life and that Cinematic mode are the highlights no question, while all the little things are great trickle downs of technology and advances across most areas of the device.

I think for iPhone X owners and earlier, this is a really awesome update. But for those with 11 or 12 models, save your money for the iPhone 14.

If you do choose to upgrade to iPhone 13, check out the telco deals, for the first time in a long time there are genuine deals on offer as the big three telcos try to win you over for the next year or two.

Source : 9 News More   

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.