On the first trading day of Hong Kong shares after the Mid-Autumn Festival holidays, Evergrande’s share price rose 17.62% to 2.67 yuan at the close. Did some media start speculating whether the crisis would be resolved?
Evergrande has recently launched a series of self-rescue actions: on the one hand, it has reiterated that it “does everything possible to ensure the delivery of the property”; on the other hand, a corporate bond issued by Evergrande 23 was originally paid in September, and Evergrande claimed it had been resolved through off-market trading: it would temporarily alleviate market concerns about default on interest payments.
However, compared to the maximum of 20.2 yuan of Evergrande’s share price last year, even after a day of firing, the market value still evaporates at 86%. The Chinese government has not stated that it will intervene. The alarm of the Evergrande crisis has not been raised.
The focus of the market remains on the degree of effect of the Evergrande crisis and whether it will become China’s “Lehman moment”.
Evergrande self-help and rescue
For Evergrande, the recent Mid-Autumn Festival shows no signs of rest:
On Tuesday, Xu Jiayin, chairman of Evergrande’s board of directors, issued a letter to all employees stating that Evergrande will surely come out of the “dark moment” as soon as possible;
On Wednesday at midnight, Evergrande held a special meeting on “Resume work and resume production to ensure delivery.” Xu Jiayin called on the whole group to “put all energy into the recovery of labor and production to ensure delivery” and that everything be done to resume labor and production, and do everything possible to ensure delivery. Xu Jiayin said, “If you want to think about what the owners think and what worries them, only by completely resuming work and production, resuming sales and resuming operations, you can protect the rights and interests of the owners, make sure you pay without problems wealthy investors and gradually solve the business problems of up-and-coming partners. Only when the bills are changed can the loans of financial institutions continue to be repaid one after the other “;
On Thursday, an Evergrande corporate bond called “20 Evergrande 04”, with a total size of 4 billion yuan, has a coupon rate of 5.8% during the interest calculation period and an equivalent interest of about 232 million yuan. iuans. on September 23rd. Interest is paid on Sunday (Thursday). Evergrande announced that it would pay interest from September 23, 2020 to September 22, 2021 on the 23rd. But instead of going through the China Securities Depository and Clearing Corporation, they opted to trade over-the-counter methods. This has temporarily alleviated previous concerns about possible default on interest payments.
In addition to undertaking a series of self-rescue actions, the Central Bank of China has also taken action in response to market fluctuations caused by the Evergrande crisis.
On September 23, the People’s Bank of China increased the volume of reverse repurchase transactions to 120 billion yuan. After the previous week’s reverse volume of reverse repurchase operations to 100 billion yuan, central bank operations further increased the volume. today it has released 90 billion net yuan.
While the increase isn’t big, the meaning of attention at the end of the season is very clear. Reuters believes that in addition to continuing to stabilize capital fluctuations between seasons, the shock wave caused by the Evergrande debt crisis has the potential to spread, and the policy may also be appropriate to send signals to calm down. · Consider.
Zhou Hao, a senior Asian economist at Commerzbank, believes the central bank’s attitude is still a bit broader than expected and that overall market sentiment is not stable.
“In any case, the emotional instability is caused by Evergrande. The central bank is not going directly to Evergrande, but against the series of market fluctuations that has detonated Evergrande.”
“Moment Lehman” worries
Although much good news has led to a rise in stock prices, Evergrande is still far from coming out of the situation.
Some analysts are concerned that Evergrande’s debt is being passed on to the financial system through banks, causing a crisis similar to the “Lehman moment” in 2008.
There is data support behind this concern. Among Evergrande’s total liabilities of 1.97 trillion, the total interest-bearing liabilities (bonds, bank loans, etc.) is 571.8 billion yuan. According to Evergrande’s letter to government departments late last year, Evergrande’s liabilities involve more than 128 banks and more than 121 non-bank institutions.
However, on Thursday, China Everbright Bank, Huaxia Bank, Bank of China, China Construction Bank, Bank of Xiamen, Bank of Nanjing, etc., declared that they had low exposure to the Evergrande group and that the risk was controllable.
Minsheng Bank is one of the banks with the largest exposure to Evergrande. On Thursday, the bank said it will continue to reduce Evergrande’s risk exposure and that the loan balance will be reduced by about 15% compared to the end of June 2020. Cooperation between the two sides is mainly focused on in balance sheet loans. Alternative banking models, such as sales and agency funds, have cooperated with the Evergrande group. All businesses are conducted in accordance with loan management requirements and have not participated in any hidden liabilities or any off-balance sheet financing of the Evergrande Group.
So will Evergrande’s default become China’s Lehman moment?
“In our opinion, it’s still a long way off.” Barclays Capital said the real “Lehman moment” is a crisis on a very different scale. If this happens, most credit institutions throughout the financial system will be affected, the credit crunch in the real estate industry will intensify severely and lending activities in the interbank market will also stagnate.
However, in the real estate industry, the turmoil has been severe.
JPMorgan Chase believes the three red lines imposed by the government on developers and restrictions on bank real estate lending have worsened the rapidly deteriorating situation. Recently, some weaker developers in need of refinancing have shown signs of distress, and their bonds are now trading at only 50-60% of face value. “In fact, we estimate that there may be 11 defaults this year, with a total amount of US $ 30 billion (representing a delinquency rate of 23%).
While it may not be as serious as the “Lehman moment,” the negative outlook has caused rating agencies ’expectations of the Chinese economy to begin to decline.
The rating agency Fitch has just lowered China’s economic growth forecast for 2021 from 8.4% to 8.1%, noting that the main reason is that the slowdown in real estate will suppress domestic demand.
“Real estate deleveraging is holding back China’s economic recovery. Macro policies have begun to recalibrate, but the slowdown in real estate activity will affect domestic demand and the global commodity market,” Fitch said in his latest report.
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