Evergrande’s recent warnings that it may default on its $300 billion liabilities have shaken markets globally
The collapse of troubled Chinese property developer Evergrande Group could prove “much worse” than a “Lehman-type situation” for investors in China, according to veteran short seller Jim Chanos, who predicted Enron’s collapse two decades ago.
Beijing unlikely to save Evergrande, says report
The collapse of Evergrande – which has accumulated more debt than any other real estate developer in the world – could halt the real estate boom that has driven economic growth in China over the past decade, Chanos said. told the Financial Times.
“There are a lot of Evergrandes in China — the Evergrande just happens to be one of the biggest,” said the founder of New York-based hedge fund Kynikos Associates, “but not all developers look that way.” The entire Chinese property market is on stilts.”
Evergrande’s recent warnings that it could default on its $300 billion in liabilities have shaken markets globally as investors Worry about the repercussions for international bondholders.
The company said Wednesday that it has “resolved” Thursday’s payments on domestic bonds, but provided few details about whether it met its obligation in cash or other assets. It also did not comment on the status of payments to offshore investors, including major international asset managers, on Thursday.
Chanos said the Evergrande fallout is expected to cause some collateral damage globally, but it is unlikely to be as severe as the Lehman Brothers collapse 13 years ago, but the domestic impact on the Chinese economy could be worse. Is.
“In many ways you don’t have to worry that it’s a Lehman-type situation, but in many others, it’s much worse because it’s a symptom of the whole economic model and the debt behind the economic model,” he said.
Evergrande’s cash crunch began last year, when Chinese President Xi Jinping sought to curb expansion to fuel the domestic real estate sector’s reliance on debt.
Evergrande, in particular, used the debt not only to build large and empty apartment complexes, but also to expand into entirely new areas such as bottled water and electric cars.
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“If you try to shrink this bubble, it’s fraught with risks,” Chanos said. “I don’t think they’re contagious risks. It’s not a Lehman-type situation where there are contagion interbanks and intra-banks and everyone stops lending to everyone. It’s more of a risk to the economic model because residential Real estate is still such a big part of GDP.”
Chanos has been sounding the alarm over a potential bubble in China and its real estate sector since 2010.
Since then, he has continued to bet against Chinese companies, including Luckin Coffee, which was known as the China domestic version of Starbucks. Last year, Luckin stock fell after news broke that it was being investigated for accounting fraud and that Chanos had closed his position while taking profit.
Investors appear to largely agree with Chanos’ stance that companies with exposure to China are most at risk of Evergrande’s collapse. Other Chinese real estate stocks have fallen in value this week as investors sell shares.
Analysts at LPL Financial said in a note to clients that the bigger question is whether the Chinese government will be involved and bail Evergrande in some capacity they believe will not allow China to default.
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