NEW DELHI: With China’s second-largest property developer Evergrande facing an existential crisis, which in turn has sent shockwaves across global equity market, many, including India’s top banker Uday Kotak, have started calling it a “Lehman moment for China”.
Evergrande, whose liability exceeds over $300 billion, is struggling to pay $83.5 million in interest relating to its March-2022 bond on Thursday. It has another $47.5 million payment due on September 29 for March 2024 notes. Both bonds would default, if the company fails to settle the interest within 30 days of the scheduled payment dates, and that is where the fear is.
Given how debt-laden China’s property developers are, there could be a whole wave of defaults around the corner, especially at a time when the Chinese government has brought in curbs to reduce dependency on borrowings, which would have the potential to kick-start a hard landing.
Deepak Jasani, Head of Retail Research, HDFC Securities, said that one camp believes that the woes of Evergande, could morph into a systemic crisis reminiscent of the 2008 collapse of Lehman Brothers.
“This is more the case as anyway, valuations of global equities seem stretched on a historical basis and an unwind of the Federal Reserve’s easy money policies is looming, that could result in a sudden drop in risk appetite leading to a broader sell-off. If these initial defaults happen, and institutional and other foreign investors are more affected compared to domestic investors in China, then it could impact sentiments even more,” Jasani told TNIE.
However, the other camp believes that if a capitalist country like the United States managed to save the banking industry, the economy and the global economy as well, the Chinese government, which is a controlled country, will step in and Evergrande would either be nationalised or subsidised, hence ruling out the Lehman moment which adversely affected economies across the world.
A wave of defaults around the corner
Given how debt-laden China’s property developers are, there could be a whole wave of defaults around the corner, especially at a time when the Chinese government has brought in curbs to reduce dependency on borrowings.