What is Evergrande? The fall of the Chinese real estate giant that can generate a crisis around the world

What is Evergrande?  The fall of the Chinese real estate giant that can generate a crisis around the world

The fall of the Asian giant of the real estate sector, which will affect the whole world.

Photo: CHRISTOF STACHE / / AFP / Getty Images

Evergrande Grupo is a real estate giant, the second largest in that country and currently there is a clear possibility that it will collapse and bankrupt, and with this a domino effect and cause the much feared real estate bubble.

Evergrande is currently the most indebted real estate agency in the worldAfter years of dedicating himself to borrowing in order to finance all the businesses in which the group expanded. In its expansion, construction, amusement parks, a water bottling plant, electric cars and apparently even soccer teams stand out.

The company annually encompasses about 200,000 direct employees and almost 4 million indirect employees.

We are talking about one of the biggest financial tests that the Asian country’s financial system would face, so the proportions of the crisis that it would cause for China are incalculable at the moment.

Evergrande’s debt reaches $ 300 billion, an amount that is equivalent to 2% of Chinese GDP. And when it comes to the real estate sector for China it represents 30% of its economy.

The fear in the markets is that the fall of Evergrande will produce the same effect that Lehman Brothers achieved in 2008 on Wall Street. And it would affect all the big investors who bought high yield debt.

According to Bloomberg, Evergrande owes its creditors about $ 670 million in 2021, plus $ 3.45 billion for March and April 2022.

The company has found it difficult to pay its suppliers because it depends on the money that comes in from the pre-sales of apartments under construction, and those sales have stagnated. If suppliers are not paid, they stop supplying materials or services. So it is impossible to finish the constructions and therefore obtain the money from those sales. We are talking about a vicious circle.

Evergrande issued a statement to announce that cash flow is currently under “enormous pressure.” Hundreds of projects are currently on standby.

There is already talk of “ghost cities” in China, and in recent days there have been multiple demonstrations of buyers who want to move into their homes, not yet finished. Currently, more than a million people expect to move into their new properties.

If one of China’s largest real estate companies goes bankrupt, everyone who made an investment with it will lose their money, and real estate buyers will lose their deposits as well.

The expected domino effect could exceed the borders of the Asian country. If we remember the real estate crisis of 2008, when the big real estate companies go bankrupt, the domino effect affects banks, investors, lenders, among others.

“The financial consequences would be far-reaching. Evergrande reportedly owes money to about 171 national banks and 121 other financial companies, “Mattie Bekink, an expert at the EIU (Economist Intelligence Unit), told the BBC.