There is no doubt, that Evergrade is one of world’s largest infrastructure developer with more then 1300 projects in 280 cities of China itself, which account to almost 3% of China real estate. The global news from yesterday media LINK, it scared everyone. Lets trying to understand why Evergrande ‘s 50 Billion Valuation drop to 4 Billion in past 12 months, Its shares lost 85% and truth behind market scare and news. In first glance, it does not seem to be a simple cashflow crunch due to worldwide crises. However world has started effecting. Today India steel companies share already dropped.
The Organic Growth ?
Evergrande is not only only a Infrastructure Developer. In past decade, they grew organically and inorganically both to become a large Conglomerate expand its portfolio from wealth management to automotive to food and beverages. To fuel growth, they borrowed 300 billion dollars from 171 Chinese banks/ 121 finance companies.
Talking back about the core business, there surely is an impact of 1.5 million apartments sold but not delivered, and then also they offered 50% discount to pay 100% amount. If they did not pay interests in time , it can drive global crisis. It will further make it tougher for credit market in china.
In todays globally connected system, there is a possibility of Messy Global meltdown or a Managed Collapse or bail out by Govt. Lets see. Whatever happens in china will effect any global domestic market and value of our own investments.
The Future Possibilities
I don’t think China Government bailout option is available due to many reasons, one being Xi Jinping’s 100 rule book to regulate business , in which one being restrict private business massive borrowing which earlier impacted Alibaba’s ANT Group last year, but lets see what future holds. Just pray to God this does not become another likes of Lehman Brothers resulting in fearfully messy global meltdown.