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Evergrande teeters on edge of default as $148M payment falls due

413 points by nwidynski 5y ago

bingohbangoh 5y ago
So is this still "the next Lehman brothers"? Or have we moved on to something else?
- chalst 5y ago
  It's Lehman-like in that I don't think China will be bailing anyone out. It's not Lehman-like in that the company isn't a tangled octopus in the middle of the financial system. Lots of investors exposed to developing markets will get burned, but I don't think the knock-on effects will be huge.
  - WhisperingShiba 5y ago
    I think the complicating factor is that the Chinese housing market is where the people of China attempt to have savings. A major housing market panic in China could create a lot of despair and unrest in China.
    - jjoonathan 5y ago
      Which would challenge CCP legitimacy, which would push the CCP to rely on the time tested tactic of blaming someone else and going to war over it. I really, really hope I'm wrong about that.
      - WhisperingShiba 5y ago
        Most people in the world do not actually want war. I'm quite confident that, while we have not evolved past being mean to each other and dumb scarcity mindsets, that the average person knows that any warfare is bad for them.
      - whimsicalism 5y ago
        The CCP has a long way to fall - it is much more popular among its populace than our government is and we aren't seeing substantial armed rebellion here yet. The dynamic in China is that the central government is overwhelmingly popular and the local governments are more derided.
        stickfigure 5y ago
        Eh? We just voted the guys in charge out last year. No need for armed rebellion, but same results. What happens in China when public sentiment shifts is anyone's guess.
        chalst 5y ago
        It used to be the case that the CCP was decentralised: the regions had their own parties that were not ideologically answerable to the central party. Then, popular unrest could lead to the leader losing support of the regions, which could lead to the leader being deposed. Mao liked it this way, because his popularity in the regions strengthened him against his enemies in the central party. I don't really follow the minutia of today's politics in China, but my impression is that Xi has taken away power from the regions. If so, then this former route for change may have been blocked.
- dageshi 5y ago
  China doesn't have a convertible currency, it might cause turmoil in China but I don't see how it can effect the rest of the world much.
  - rossdavidh 5y ago
    If Chinese billionaires have to start selling a lot of overseas real estate, equities, cryptocurrencies, etc. to pay off debts because the CCP put them in a small room with a terminal and said "pay off this debt or bad things happen to you", then it can absolutely affect the rest of the world. Now, given how many things in the US are at terribly inflated prices, especially housing that people need to live in, maybe in the long run it's a good thing. But between here and there it could be quite turbulent.
- JumpCrisscross 5y ago
  > is this still "the next Lehman brothers"? No, and it never was. With Lehman, the banks stopped lending to Lehman and then to everyone else. In China, Beijing can let Evergrande default while compelling lending to peripheral players. Thise players know this. The market knows this. That makes contagion risk de minimis. (For Western central banks, the analogous policy tool is “extraordinary measures,” i.e. committing to buying everything in sight.) Keep in mind that Evergrande is defaulting because Beijing implemented debt limits. They’re wilfully deflating the bubble American policymakers ignored in ‘08. I’m a China hawk. But this whole episode is a show of strength for their system.
  - nostromo 5y ago
    > They’re wilfully deflating the bubble American policymakers ignored in ‘08. The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn. The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
    - whimsicalism 5y ago
      They knew it was too hot, but the market failure in the bond rating market hadn't been identified so they were operating off of flawed information. The real failure of the Fed was being way too tight monetarily after the crisis started though.
      - tomputer 5y ago
        It looks like they went from too tight to too loose: https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE I’m not an economist but that graph looks unhealthy.
        whimsicalism 5y ago
        Monetary base is irrelevant without looking at velocity (https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V) The Fed has been much more on point this time around than it was in 2008.
- mattbrewsbytes 5y ago
  Like software Q&A's the answer might be "it depends". Imagine there are EU/US banks that have loaned money to Evergrande or any related domino that may fall. I imagine a loan from a bank is listed as an asset for the bank because they are charging interest monthly and it produces income for the bank. Now they don't have that income because the company isn't paying. It now moves to the liability part of the balance sheet. One of the elements of the 2008 crisis was mortgage backed securities, bundling of mortgages sold as a security. What if these banks have done the same thing with Commercial mortgages/bonds? How many derivatives are based on these loans/bonds Evergrande isn't paying on? Zero, then likely no "contagion". Many? maybe they are isolated to China? I think its likely an onion that is peeling back its layers and we don't know the full impact until its done.
drumhead 5y ago
Time for China to learn all about financial restructuring. I'm thinking a Debt for equity swap, a haircut for investors and jail time for the directors. Property is a religion in Asia, there's an unshakeable belief in its robustness as an investment, this may help to shake that a bit.
- randomsearch 5y ago
  Not just Asia, as we shall see when interest rates begin to rise in the west.
  - drumhead 5y ago
    Yes, that is not going to be pretty
underscore_ku 5y ago
i'm scared!
- deleted 5y ago
  [deleted]
polskibus 5y ago
original title is "Evergrande teeters on edge of default as $148 mln payment falls due". not exactly "defaults"
- chalst 5y ago
  If you don't make every payment in whole when it is due, and you haven't managed to renegotiate with your creditors, then you've defaulted. It doesn't mean that the debts are worthless, but it does mean that their value is up in the air.
- nwidynski 5y ago
  This post was in direct response to: http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf . I just thought the reuters article contained more relevant information.
  - makerofspoons 5y ago
    AP is reporting the default is official: https://apnews.com/press-release/pr-newswire/business-china-evergrande-group-china-36dc3f16fe95c154a768d071345cdb77 https://apnews.com/press-release/pr-newswire/business-china-...
    - yorwba 5y ago
      > Press release content from PR Newswire. The AP news staff was not involved in its creation.
  - stefan_ 5y ago
    This PDF is predicting "the final meltdown of the global financial system" in the first paragraph. I don't want to be a negative nancy, but it reads a lot like "all vaccinated people will fall over dead by end of the year" to me.
  - asplake 5y ago
    Edit: that link seems to justify the title but it doesn’t fit the main article. Seriously misleading title though. A default is a well-defined event. “Defaults” implies that it has happened. “Teetering” is something else. Needs fixing.
jjt-yn_t 5y ago
I read that as "if you install the evergrande app, its defaults would be..." or "if you use the new coding language or front end to AWS, its defaults would be" at first. Til I saw the URL past the headline...
darkwater 5y ago
Can anyone ElI5 what this could potentially mean for the world economy?
- christkv 5y ago
  Exposure to the international market is 19 billion USD so I'm guessing some funds will take a bad hit and will start legal proceedings. Bonds must have been junk for awhile now though so don't know who takes the hit. The unknown is the internal Chinese market side-effects. Depends on who holds the debt and if the government steps in to rescue it.
  - misterbwong 5y ago
    19B international exposure really doesn't seem like a lot, but, as you said, in the context of 300B total in liabilities. $279B is -a lot- for a Chinese market where the home ownership rate is almost 90% and non-primary home purchases account for ~70% of the housing purchases.
    - christkv 5y ago
      "The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms," the Economist Intelligence Unit's (EIU) Mattie Bekink told the BBC. I would suspect the Chinese government will backstop the banks and firms but force consolidation and punish some people publicly.
    - ethbr0 5y ago
      Calling it now: Tether and a few other stablecoins explode. Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?
      - snovv_crash 5y ago
        Any of the other BRICS countries would also be a viable option for that, without the big downside of the CCP's anti-crypto position.
mmastrac 5y ago
How much exposure does the Western world have to this? My guess would be "not much". It'll sting some emerging market investors, but I don't think you'll see a massive knock-on here.
- raesene9 5y ago
  My guess is the opposite :) Chinese bonds have nice high yields and there's a load of money from western companies looking for yield. Until recently they were considered (by most people) to be a relatively safe bet, so why wouldn't there be a load of money in there...
- bsanr2 5y ago
  A lot of people seem intent on letting us know that this is the case, at least.
  - WhisperingShiba 5y ago
    The economy is held up by belief, and while I'm sure there are some good intentioned people telling us this, there are certainly some people who are using this as an opportunity to change financial positions.
    - bsanr2 5y ago
      It's important to point out that DMSA's release alledges that media has been trading on rumors that Evergrande had made the earlier missed debt payments before the grace period ended, when in fact it it had not. Several commentators over the past few weeks have pointed out that all of the media reports saying that the payments had been made were circuitously cited; no one had heard from a creditor directly. Now we have. So now one has to wonder why essentially every major journalistic entity involved in the financial space would bet their reputation on hearsay, for something with such limited effects; especially when it would only buy a few weeks, at most, of this false belief.
      - svnt 5y ago
gnabgib 5y ago
This can't be good for SoftBank/Masayoshi Son right after they just had to report a large loss (unless this risk was embedded in that report)
gremlinsinc 5y ago
Here's to hoping for more big real estate investor defaults, maybe housing prices in the USA will drop from oversea investors offloading properties they can't afford the taxes on... (wishful thinking).
- noah_buddy 5y ago
  If property investment in China turns sour, where do you think those investors will go? At least some will invest in property in the US.
Specie33 5y ago
Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.
- jonahbenton 5y ago
  Uh, Tether?
  - vmception 5y ago
    because some guy on twitter said any Tether exposure to commercial paper = 150% exposure to imploding evergrande bonds this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo https://youtu.be/GM-e46xdcUo Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
    - raesene9 5y ago
      I don't think Tether is in purely Evergrande bonds, but I do think Tether has a load of Chinese bonds/commercial paper, and if an Evergrande default causes a general reduction in the value of those, Tether will be in a very sticky position as they'll have a large hole in their reserves...
      - AlexCoventry 5y ago
        Why do you believe that?
        raesene9 5y ago
        So AFAIK Tether has ~$30b of commercial paper (https://tether.to/wp-content/uploads/2021/08/tether_assuranceconsolidated_reserves_report_2021-06-30.pdf https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) which would make it one of the larger commercial paper operators in the US market if it operated there. From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume. Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
Kye 5y ago
Some good explanatory threads I saved when the Evergrande news first broke a couple of months ago: https://twitter.com/SahilBloom/status/1439920043404546050 https://twitter.com/SahilBloom/status/1439920043404546050 https://twitter.com/FabiusMercurius/status/1439218956779151361 https://twitter.com/FabiusMercurius/status/14392189567791513... https://twitter.com/INArteCarloDoss/status/1438944431734919175 https://twitter.com/INArteCarloDoss/status/14389444317349191...
qnsi 5y ago
This is not even frontpage of ft, bloomberg etc. Bloomberg Europe TV station talks about Johnson & Johnson factory problems in China but not Evergrande. My reading from above pieces of information: it's not that important yet. Maybe they will pay late again as they did previously when they were late one day.
- nwidynski 5y ago
  Well this time they already were inside a 30-day grace period which as of 3 hours ago they missed aswell, hence the default.
  - riffraff 5y ago
    It's unclear if they paid or not, even last time the creditors received the Money the day after the 30 days had passed. It seems they didn't but we won't know until tomorrow or so.
    - raesene9 5y ago
      One organization who states that they are a creditor has published a letter stating that they've not been paid https://twitter.com/dhthakur745/status/1458499174026997760?s=20 https://twitter.com/dhthakur745/status/1458499174026997760?s...
      - riffraff 5y ago
        AFAIU that refers to "we've not Received money by the end of the day". But the clearinghouse managing the bonds said those have been paid later, just like last time. Notice the latter also says "they defaulted again", which is not true. https://news.yahoo.com/evergrande-makes-overdue-interest-payments-024059615.html https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
- mpalczewski 5y ago
  The news doesn't decide what to run based on importance but rather based on salience. As someone that is financially versed, even I have trouble grasping the why this is a big deal. Complicated things don't get run. Whereas J&J factory problems, that sounds like a covid thing and it's easy to see why that might be important.
nikanj 5y ago
Isn’t $148 million like four meme NFTs? Why would a large company be teetering on the edge for such a small amount of money?
- nwidynski 5y ago
  The payment on the debt was due today, and as of 3 hours ago that timeframe has passed, which is why the default got announced by the DMSA.
- ndesaulniers 5y ago
  Because they have multiple different bonds outstanding with differing maturity dates...failure to pay back one is indicative that there may be successive failures after this one.
  - toomuchtodo 5y ago
    There are cross default provisions across the bonds. A default on one is a default on all 23 outstanding bonds.
- Yuioup 5y ago
  This is interest payment.
- thirtyseven 5y ago
  Because they don't have it
- weego 5y ago
  Because they actually are in debt to the tune of $300bn but they've managed to keep playing so they stay afloat. This would be the moment the music stops.
- duxup 5y ago
  From other articles the issue is that they can't even pay a "meme NFT" ... If they can't pay that, what can they pay on their 300B in other debts? Other news sources indicate they don't have money coming in, possibly NONE, the real estate market in China is getting cold... and they have unfinished projects that they already collected money on that require money to complete.
paulpauper 5y ago
Any top 10 billionaire could write them a check for the amount owed without even breaking a sweat and thus stave off of billions of dollars of systemic damage. It goes to show how bailouts, despite being maligned by the public, do work.
- leesec 5y ago
  Yeah or you know, the Chinese government.
- throwuxiytayq 5y ago
  Oh yeah, I'm sure they'd bounce right back after that.
- phyalow 5y ago
  Problem is, in the context of their disastorous (and likely fraudulent) balance sheet, they really need billions of dollars more. It really isnt about $148m, this is just the tip of the iceberg - its just an incremental interest obligation, with a wall of debt lurking behind it. So while they may get another month or two leniancy from the markets if they pay this, it still doesnt resolve the near inevitability of default.
- OnlineGladiator 5y ago
  They have reoccurring interest and sometimes principal payments well into the future - overall their debt is over $300 billion. So no, it's not a drop in the bucket for any one person. https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d18d2 https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d1... As to how you've jumped from "rich individuals don't want to pay corporate debts" to "government bailouts clearly work" I have no idea.
- soperj 5y ago
  They owe 300 billion. So no they couldn't.
  - paulpauper 5y ago
    This is doable by a large govt. $300 billion is 1/10 of covid aid and related stimulus. The point is that small, strategic payments can stave off much greater systemic damage, which is what a bailout does.
BogdanPetre 5y ago
Now we will know which US and European banks are exposed and how big..
DebtDeflation 5y ago
Speaking of misleading headlines: https://www.nytimes.com/2021/11/10/business/evergrande-bond-deadline.html https://www.nytimes.com/2021/11/10/business/evergrande-bond-... https://archive.md/cPsjv https://archive.md/cPsjv "China Evergrande meets a Wednesday payment deadline for two of its bonds." On multiple levels, too. "It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment." So basically they MIGHT have made payments on 2 of the 3 bonds. How is this being treated as anything other than a default? Is the financial press just afraid of upsetting China here?
- deleted 5y ago
  [deleted]
- baybal2 5y ago
  > Is the financial press just afraid of upsetting China here? BlackRock is the biggest foreign owner of Evergrande bonds. Next there are Vanguard, and a few other equally big Western funds. https://www.reuters.com/business/finance/blackrock-hsbc-among-largest-buyers-evergrande-debt-morningstar-2021-09-21/ https://www.reuters.com/business/finance/blackrock-hsbc-amon...
  - adventured 5y ago
    Where does the article say that? It says: "BlackRock, HSBC among largest buyers of Evergrande debt" Those are relatively recent purchases and they were tiny re BlackRock - "BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its $1.7 billion Asian High Yield Bond Fund, according to Morningstar." 1% of $1.7 billion, or $17 million. That's equal to 1/100th of 1% of BlackRock's assets. And they've got $9+ trillion under management. BlackRock has taken a hit on their equity in Evergrande, which is already largely toast: "The data also shows that BlackRock, the world’s largest asset manager, has suffered a $95.3m book loss on its Evergrande holding, which at the start of the year stood at just over $111m." https://www.fnlondon.com/articles/blackrock-vanguard-shareholdings-in-evergrande-plummet-by-more-than-250m-20210928 https://www.fnlondon.com/articles/blackrock-vanguard-shareho... The Financial Times in late September estimated BlackRock's total exposure to Evergrande at $400 million. At their scale they can take a $250-$400 million loss and shrug it off. Evergrande represents a several hundred billion dollar problem for China domestically, and that's before you get to the cascade risk for their property market (which represents 65-70% of all household assets in China).
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pezzana 5y ago
> Shares of developer Fantasia Holdings (1777.HK) plunged 50% on Wednesday after it said there was no guarantee it would be able to meet its other financial obligations following a missed payment of $205.7 million due on Oct. 4. Watch the US bond market closely. Today saw a sharp selloff on the 10-year maturity, a favorite "asset" of foreign governments and companies. When those organizations get into trouble, they sell treasuries to raise cash. "Trouble" often comes in the form of dollar-denominated debt which must be serviced in dollars. As the dollar rises, borrowers of dollar-denominated debt must raise more local currency to buy the dollars to service their loans. That puts further upward pressure on the dollar, distressing foreign usd-debtholders even more. It's called a "short squeeze": https://www.lynalden.com/global-dollar-short-squeeze/ https://www.lynalden.com/global-dollar-short-squeeze/ The entire world (including the US federal government) has taken a short position on the US dollar by assuming obligations requiring them to pay later in dollars. Ask any Ape on WallStreetBets what happens to shorts during a short squeeze, and you'll get the same answer: they get rekt. The dollar spiked past a key technical level today. https://www.tradingview.com/chart/?symbol=DXY https://www.tradingview.com/chart/?symbol=DXY In 2020, a similar dynamic took hold, with stocks, bonds, and gold falling in price as the dollar surged. We may not be there yet, but the scramble for dollars in China (and possibly all of Asia) is just starting.
- rwmj 5y ago
  Is your theory that the US government will run out of dollars? How do you imagine that will happen - a paper shortage?
  - Andrew_nenakhov 5y ago
    Digits overflow would be a more appropriate concern
  - codyb 5y ago
    The system isn't that simple? The US Government sells treasuries and bonds to raise dollars. These have to be approved by congress, which is why every so often you'll hear about government shutdowns, because, yes, if for whatever reason, the US Congress doesn't pass a debt ceiling lift, the US Treasury will not have enough money to run things anymore. Then there's the Federal Reserve, which loans dollars to banks to create liquidity and velocity in the monetary system depending on certain conditions (Primarily inflation and unemployment I believe). (Presumably there's a fair amount more to it than that as well).
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thereddaikon 5y ago
There has been talk for years about China's wild construction programs, creating entire cities that nobody lives in. It was obviously unsustainable. Could it be finally falling apart?
- whimsicalism 5y ago
  The follow up reporting (not widely circulated in the West) on this was that many of those cities have since been filled up and inhabited. https://asia.nikkei.com/Spotlight/Society/China-s-largest-ghost-city-booms-again-thanks-to-education-fever https://asia.nikkei.com/Spotlight/Society/China-s-largest-gh... Wade Shepard, author of Ghost Cities of China: > Today, China’s so-called ghost cities that were so prevalently showcased in 2013 and 2014 (...) have filled up to the point of being functioning, normal cities I would be really, really skeptical of post-2012 reporting on China. I understand why people are increasingly anti-China (the Uyghur stuff is disgusting) but you really don't get close to a neutral perspective from most of the Western media.
  - thereddaikon 5y ago
    Neither do you get one from China itself. Its hard to tell what is really going on when everyone has an agenda to warp reality.
    - whimsicalism 5y ago
      Totally. I found actually visiting China to be informative.
      - chii 5y ago
        There's a saying in chinese, which roughly translates to "seeing is understanding", and it is so true. You can only see the truth for yourself, and you need to see it with your own eyes.
    - smilekzs 5y ago
      FWIW, the quoted article is from Japan.
diveanon 5y ago
Who could have ever predicted this? Glad I’ve been building a solid crypto portfolio, looking forward to cashing in the last few years gains to buy some houses on the cheap again after the economy implodes.
- tobltobs 5y ago
  Last time the economy imploded (March 2020) BTC also fall apart.
- paulpauper 5y ago
  hmmm what is bitcoin doing on this news? it's evident crypto is not a hedge against uncertainty or bad news, but rather is highly correlated with the stock market and overall US economy.
  - diveanon 5y ago
    Btc hit a new ath today along with eth…
- l33tbro 5y ago
  You do realize crypto is part of the same speculative bubble? And before the strawmen start piling up - that doesn't mean all crypto is forever useless, but right now crypto it is absolutely over-invested in relative to liquidity.
irthomasthomas 5y ago
Surprised Xi didn't just step in and pay the trifling sum.
ww520 5y ago
So those Tether "loans" to Evergrande are all gone up in smoke?
xwdv 5y ago
$148M correct? Seems small, like a fairly wealthy multi-billionaire could just pay that off in one fell swoop.
- nwidynski 5y ago
  This is just the interest payment on a $300B debt.
- ncallaway 5y ago
  My mortgage payment is small enough that a lot of people could easily afford a single payment if I had defaulted on it. That doesn’t mean they could just pay off the entire remainder of a mortgage. Paying off the current payment doesn’t deal with the remaining $300B debt that they need to service. It just kicks the can down the road a few days. Good luck finding a multi-billionaire that’s going to swoop in and make $148M payments on a regularly recurring basis for the next decade.
bob229 5y ago
Lol
rvz 5y ago
Translation: A crash is incoming.
deleted 5y ago
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413 points by nwidynski 5y ago

bingohbangoh 5y ago

So is this still "the next Lehman brothers"? Or have we moved on to something else?

chalst 5y ago
It's Lehman-like in that I don't think China will be bailing anyone out. It's not Lehman-like in that the company isn't a tangled octopus in the middle of the financial system. Lots of investors exposed to developing markets will get burned, but I don't think the knock-on effects will be huge.
- WhisperingShiba 5y ago
  I think the complicating factor is that the Chinese housing market is where the people of China attempt to have savings. A major housing market panic in China could create a lot of despair and unrest in China.
  - jjoonathan 5y ago
    Which would challenge CCP legitimacy, which would push the CCP to rely on the time tested tactic of blaming someone else and going to war over it. I really, really hope I'm wrong about that.
    - WhisperingShiba 5y ago
      Most people in the world do not actually want war. I'm quite confident that, while we have not evolved past being mean to each other and dumb scarcity mindsets, that the average person knows that any warfare is bad for them.
    - whimsicalism 5y ago
      The CCP has a long way to fall - it is much more popular among its populace than our government is and we aren't seeing substantial armed rebellion here yet. The dynamic in China is that the central government is overwhelmingly popular and the local governments are more derided.
      - stickfigure 5y ago
        Eh? We just voted the guys in charge out last year. No need for armed rebellion, but same results. What happens in China when public sentiment shifts is anyone's guess.
        chalst 5y ago
        It used to be the case that the CCP was decentralised: the regions had their own parties that were not ideologically answerable to the central party. Then, popular unrest could lead to the leader losing support of the regions, which could lead to the leader being deposed. Mao liked it this way, because his popularity in the regions strengthened him against his enemies in the central party. I don't really follow the minutia of today's politics in China, but my impression is that Xi has taken away power from the regions. If so, then this former route for change may have been blocked.
dageshi 5y ago
China doesn't have a convertible currency, it might cause turmoil in China but I don't see how it can effect the rest of the world much.
- rossdavidh 5y ago
  If Chinese billionaires have to start selling a lot of overseas real estate, equities, cryptocurrencies, etc. to pay off debts because the CCP put them in a small room with a terminal and said "pay off this debt or bad things happen to you", then it can absolutely affect the rest of the world. Now, given how many things in the US are at terribly inflated prices, especially housing that people need to live in, maybe in the long run it's a good thing. But between here and there it could be quite turbulent.
JumpCrisscross 5y ago
> is this still "the next Lehman brothers"? No, and it never was. With Lehman, the banks stopped lending to Lehman and then to everyone else. In China, Beijing can let Evergrande default while compelling lending to peripheral players. Thise players know this. The market knows this. That makes contagion risk de minimis. (For Western central banks, the analogous policy tool is “extraordinary measures,” i.e. committing to buying everything in sight.) Keep in mind that Evergrande is defaulting because Beijing implemented debt limits. They’re wilfully deflating the bubble American policymakers ignored in ‘08. I’m a China hawk. But this whole episode is a show of strength for their system.
- nostromo 5y ago
  > They’re wilfully deflating the bubble American policymakers ignored in ‘08. The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn. The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
  - whimsicalism 5y ago
    They knew it was too hot, but the market failure in the bond rating market hadn't been identified so they were operating off of flawed information. The real failure of the Fed was being way too tight monetarily after the crisis started though.
    - tomputer 5y ago
      It looks like they went from too tight to too loose: https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE I’m not an economist but that graph looks unhealthy.
      - whimsicalism 5y ago
        Monetary base is irrelevant without looking at velocity (https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V) The Fed has been much more on point this time around than it was in 2008.
mattbrewsbytes 5y ago
Like software Q&A's the answer might be "it depends". Imagine there are EU/US banks that have loaned money to Evergrande or any related domino that may fall. I imagine a loan from a bank is listed as an asset for the bank because they are charging interest monthly and it produces income for the bank. Now they don't have that income because the company isn't paying. It now moves to the liability part of the balance sheet. One of the elements of the 2008 crisis was mortgage backed securities, bundling of mortgages sold as a security. What if these banks have done the same thing with Commercial mortgages/bonds? How many derivatives are based on these loans/bonds Evergrande isn't paying on? Zero, then likely no "contagion". Many? maybe they are isolated to China? I think its likely an onion that is peeling back its layers and we don't know the full impact until its done.

drumhead 5y ago

Time for China to learn all about financial restructuring. I'm thinking a Debt for equity swap, a haircut for investors and jail time for the directors. Property is a religion in Asia, there's an unshakeable belief in its robustness as an investment, this may help to shake that a bit.

randomsearch 5y ago
Not just Asia, as we shall see when interest rates begin to rise in the west.
- drumhead 5y ago
  Yes, that is not going to be pretty

underscore_ku 5y ago

i'm scared!

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polskibus 5y ago

original title is "Evergrande teeters on edge of default as $148 mln payment falls due". not exactly "defaults"

chalst 5y ago
If you don't make every payment in whole when it is due, and you haven't managed to renegotiate with your creditors, then you've defaulted. It doesn't mean that the debts are worthless, but it does mean that their value is up in the air.
nwidynski 5y ago
This post was in direct response to: http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf . I just thought the reuters article contained more relevant information.
- makerofspoons 5y ago
  AP is reporting the default is official: https://apnews.com/press-release/pr-newswire/business-china-evergrande-group-china-36dc3f16fe95c154a768d071345cdb77 https://apnews.com/press-release/pr-newswire/business-china-...
  - yorwba 5y ago
    > Press release content from PR Newswire. The AP news staff was not involved in its creation.
- stefan_ 5y ago
  This PDF is predicting "the final meltdown of the global financial system" in the first paragraph. I don't want to be a negative nancy, but it reads a lot like "all vaccinated people will fall over dead by end of the year" to me.
- asplake 5y ago
  Edit: that link seems to justify the title but it doesn’t fit the main article. Seriously misleading title though. A default is a well-defined event. “Defaults” implies that it has happened. “Teetering” is something else. Needs fixing.

jjt-yn_t 5y ago

I read that as "if you install the evergrande app, its defaults would be..." or "if you use the new coding language or front end to AWS, its defaults would be" at first. Til I saw the URL past the headline...

darkwater 5y ago

Can anyone ElI5 what this could potentially mean for the world economy?

christkv 5y ago
Exposure to the international market is 19 billion USD so I'm guessing some funds will take a bad hit and will start legal proceedings. Bonds must have been junk for awhile now though so don't know who takes the hit. The unknown is the internal Chinese market side-effects. Depends on who holds the debt and if the government steps in to rescue it.
- misterbwong 5y ago
  19B international exposure really doesn't seem like a lot, but, as you said, in the context of 300B total in liabilities. $279B is -a lot- for a Chinese market where the home ownership rate is almost 90% and non-primary home purchases account for ~70% of the housing purchases.
  - christkv 5y ago
    "The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms," the Economist Intelligence Unit's (EIU) Mattie Bekink told the BBC. I would suspect the Chinese government will backstop the banks and firms but force consolidation and punish some people publicly.
  - ethbr0 5y ago
    Calling it now: Tether and a few other stablecoins explode. Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?
    - snovv_crash 5y ago
      Any of the other BRICS countries would also be a viable option for that, without the big downside of the CCP's anti-crypto position.

mmastrac 5y ago

How much exposure does the Western world have to this? My guess would be "not much". It'll sting some emerging market investors, but I don't think you'll see a massive knock-on here.

raesene9 5y ago
My guess is the opposite :) Chinese bonds have nice high yields and there's a load of money from western companies looking for yield. Until recently they were considered (by most people) to be a relatively safe bet, so why wouldn't there be a load of money in there...
bsanr2 5y ago
A lot of people seem intent on letting us know that this is the case, at least.
- WhisperingShiba 5y ago
  The economy is held up by belief, and while I'm sure there are some good intentioned people telling us this, there are certainly some people who are using this as an opportunity to change financial positions.
  - bsanr2 5y ago
    It's important to point out that DMSA's release alledges that media has been trading on rumors that Evergrande had made the earlier missed debt payments before the grace period ended, when in fact it it had not. Several commentators over the past few weeks have pointed out that all of the media reports saying that the payments had been made were circuitously cited; no one had heard from a creditor directly. Now we have. So now one has to wonder why essentially every major journalistic entity involved in the financial space would bet their reputation on hearsay, for something with such limited effects; especially when it would only buy a few weeks, at most, of this false belief.
    - svnt 5y ago

gnabgib 5y ago

This can't be good for SoftBank/Masayoshi Son right after they just had to report a large loss (unless this risk was embedded in that report)

gremlinsinc 5y ago

Here's to hoping for more big real estate investor defaults, maybe housing prices in the USA will drop from oversea investors offloading properties they can't afford the taxes on... (wishful thinking).

noah_buddy 5y ago
If property investment in China turns sour, where do you think those investors will go? At least some will invest in property in the US.

Specie33 5y ago

Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.

jonahbenton 5y ago
Uh, Tether?
- vmception 5y ago
  because some guy on twitter said any Tether exposure to commercial paper = 150% exposure to imploding evergrande bonds this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo https://youtu.be/GM-e46xdcUo Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
  - raesene9 5y ago
    I don't think Tether is in purely Evergrande bonds, but I do think Tether has a load of Chinese bonds/commercial paper, and if an Evergrande default causes a general reduction in the value of those, Tether will be in a very sticky position as they'll have a large hole in their reserves...
    - AlexCoventry 5y ago
      Why do you believe that?
      - raesene9 5y ago
        So AFAIK Tether has ~$30b of commercial paper (https://tether.to/wp-content/uploads/2021/08/tether_assuranceconsolidated_reserves_report_2021-06-30.pdf https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) which would make it one of the larger commercial paper operators in the US market if it operated there. From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume. Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.

Kye 5y ago

Some good explanatory threads I saved when the Evergrande news first broke a couple of months ago: https://twitter.com/SahilBloom/status/1439920043404546050 https://twitter.com/SahilBloom/status/1439920043404546050 https://twitter.com/FabiusMercurius/status/1439218956779151361 https://twitter.com/FabiusMercurius/status/14392189567791513... https://twitter.com/INArteCarloDoss/status/1438944431734919175 https://twitter.com/INArteCarloDoss/status/14389444317349191...

qnsi 5y ago

This is not even frontpage of ft, bloomberg etc. Bloomberg Europe TV station talks about Johnson & Johnson factory problems in China but not Evergrande. My reading from above pieces of information: it's not that important yet. Maybe they will pay late again as they did previously when they were late one day.

nwidynski 5y ago
Well this time they already were inside a 30-day grace period which as of 3 hours ago they missed aswell, hence the default.
- riffraff 5y ago
  It's unclear if they paid or not, even last time the creditors received the Money the day after the 30 days had passed. It seems they didn't but we won't know until tomorrow or so.
  - raesene9 5y ago
    One organization who states that they are a creditor has published a letter stating that they've not been paid https://twitter.com/dhthakur745/status/1458499174026997760?s=20 https://twitter.com/dhthakur745/status/1458499174026997760?s...
    - riffraff 5y ago
      AFAIU that refers to "we've not Received money by the end of the day". But the clearinghouse managing the bonds said those have been paid later, just like last time. Notice the latter also says "they defaulted again", which is not true. https://news.yahoo.com/evergrande-makes-overdue-interest-payments-024059615.html https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
mpalczewski 5y ago
The news doesn't decide what to run based on importance but rather based on salience. As someone that is financially versed, even I have trouble grasping the why this is a big deal. Complicated things don't get run. Whereas J&J factory problems, that sounds like a covid thing and it's easy to see why that might be important.

nikanj 5y ago

Isn’t $148 million like four meme NFTs? Why would a large company be teetering on the edge for such a small amount of money?

nwidynski 5y ago
The payment on the debt was due today, and as of 3 hours ago that timeframe has passed, which is why the default got announced by the DMSA.
ndesaulniers 5y ago
Because they have multiple different bonds outstanding with differing maturity dates...failure to pay back one is indicative that there may be successive failures after this one.
- toomuchtodo 5y ago
  There are cross default provisions across the bonds. A default on one is a default on all 23 outstanding bonds.
Yuioup 5y ago
This is interest payment.
thirtyseven 5y ago
Because they don't have it
weego 5y ago
Because they actually are in debt to the tune of $300bn but they've managed to keep playing so they stay afloat. This would be the moment the music stops.
duxup 5y ago
From other articles the issue is that they can't even pay a "meme NFT" ... If they can't pay that, what can they pay on their 300B in other debts? Other news sources indicate they don't have money coming in, possibly NONE, the real estate market in China is getting cold... and they have unfinished projects that they already collected money on that require money to complete.

paulpauper 5y ago

Any top 10 billionaire could write them a check for the amount owed without even breaking a sweat and thus stave off of billions of dollars of systemic damage. It goes to show how bailouts, despite being maligned by the public, do work.

leesec 5y ago
Yeah or you know, the Chinese government.
throwuxiytayq 5y ago
Oh yeah, I'm sure they'd bounce right back after that.
phyalow 5y ago
Problem is, in the context of their disastorous (and likely fraudulent) balance sheet, they really need billions of dollars more. It really isnt about $148m, this is just the tip of the iceberg - its just an incremental interest obligation, with a wall of debt lurking behind it. So while they may get another month or two leniancy from the markets if they pay this, it still doesnt resolve the near inevitability of default.
OnlineGladiator 5y ago
They have reoccurring interest and sometimes principal payments well into the future - overall their debt is over $300 billion. So no, it's not a drop in the bucket for any one person. https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d18d2 https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d1... As to how you've jumped from "rich individuals don't want to pay corporate debts" to "government bailouts clearly work" I have no idea.
soperj 5y ago
They owe 300 billion. So no they couldn't.
- paulpauper 5y ago
  This is doable by a large govt. $300 billion is 1/10 of covid aid and related stimulus. The point is that small, strategic payments can stave off much greater systemic damage, which is what a bailout does.

BogdanPetre 5y ago

Now we will know which US and European banks are exposed and how big..

DebtDeflation 5y ago

Speaking of misleading headlines: https://www.nytimes.com/2021/11/10/business/evergrande-bond-deadline.html https://www.nytimes.com/2021/11/10/business/evergrande-bond-... https://archive.md/cPsjv https://archive.md/cPsjv "China Evergrande meets a Wednesday payment deadline for two of its bonds." On multiple levels, too. "It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment." So basically they MIGHT have made payments on 2 of the 3 bonds. How is this being treated as anything other than a default? Is the financial press just afraid of upsetting China here?

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baybal2 5y ago
> Is the financial press just afraid of upsetting China here? BlackRock is the biggest foreign owner of Evergrande bonds. Next there are Vanguard, and a few other equally big Western funds. https://www.reuters.com/business/finance/blackrock-hsbc-among-largest-buyers-evergrande-debt-morningstar-2021-09-21/ https://www.reuters.com/business/finance/blackrock-hsbc-amon...
- adventured 5y ago
  Where does the article say that? It says: "BlackRock, HSBC among largest buyers of Evergrande debt" Those are relatively recent purchases and they were tiny re BlackRock - "BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its $1.7 billion Asian High Yield Bond Fund, according to Morningstar." 1% of $1.7 billion, or $17 million. That's equal to 1/100th of 1% of BlackRock's assets. And they've got $9+ trillion under management. BlackRock has taken a hit on their equity in Evergrande, which is already largely toast: "The data also shows that BlackRock, the world’s largest asset manager, has suffered a $95.3m book loss on its Evergrande holding, which at the start of the year stood at just over $111m." https://www.fnlondon.com/articles/blackrock-vanguard-shareholdings-in-evergrande-plummet-by-more-than-250m-20210928 https://www.fnlondon.com/articles/blackrock-vanguard-shareho... The Financial Times in late September estimated BlackRock's total exposure to Evergrande at $400 million. At their scale they can take a $250-$400 million loss and shrug it off. Evergrande represents a several hundred billion dollar problem for China domestically, and that's before you get to the cascade risk for their property market (which represents 65-70% of all household assets in China).

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pezzana 5y ago

> Shares of developer Fantasia Holdings (1777.HK) plunged 50% on Wednesday after it said there was no guarantee it would be able to meet its other financial obligations following a missed payment of $205.7 million due on Oct. 4. Watch the US bond market closely. Today saw a sharp selloff on the 10-year maturity, a favorite "asset" of foreign governments and companies. When those organizations get into trouble, they sell treasuries to raise cash. "Trouble" often comes in the form of dollar-denominated debt which must be serviced in dollars. As the dollar rises, borrowers of dollar-denominated debt must raise more local currency to buy the dollars to service their loans. That puts further upward pressure on the dollar, distressing foreign usd-debtholders even more. It's called a "short squeeze": https://www.lynalden.com/global-dollar-short-squeeze/ https://www.lynalden.com/global-dollar-short-squeeze/ The entire world (including the US federal government) has taken a short position on the US dollar by assuming obligations requiring them to pay later in dollars. Ask any Ape on WallStreetBets what happens to shorts during a short squeeze, and you'll get the same answer: they get rekt. The dollar spiked past a key technical level today. https://www.tradingview.com/chart/?symbol=DXY https://www.tradingview.com/chart/?symbol=DXY In 2020, a similar dynamic took hold, with stocks, bonds, and gold falling in price as the dollar surged. We may not be there yet, but the scramble for dollars in China (and possibly all of Asia) is just starting.

rwmj 5y ago
Is your theory that the US government will run out of dollars? How do you imagine that will happen - a paper shortage?
- Andrew_nenakhov 5y ago
  Digits overflow would be a more appropriate concern
- codyb 5y ago
  The system isn't that simple? The US Government sells treasuries and bonds to raise dollars. These have to be approved by congress, which is why every so often you'll hear about government shutdowns, because, yes, if for whatever reason, the US Congress doesn't pass a debt ceiling lift, the US Treasury will not have enough money to run things anymore. Then there's the Federal Reserve, which loans dollars to banks to create liquidity and velocity in the monetary system depending on certain conditions (Primarily inflation and unemployment I believe). (Presumably there's a fair amount more to it than that as well).

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thereddaikon 5y ago

There has been talk for years about China's wild construction programs, creating entire cities that nobody lives in. It was obviously unsustainable. Could it be finally falling apart?

whimsicalism 5y ago
The follow up reporting (not widely circulated in the West) on this was that many of those cities have since been filled up and inhabited. https://asia.nikkei.com/Spotlight/Society/China-s-largest-ghost-city-booms-again-thanks-to-education-fever https://asia.nikkei.com/Spotlight/Society/China-s-largest-gh... Wade Shepard, author of Ghost Cities of China: > Today, China’s so-called ghost cities that were so prevalently showcased in 2013 and 2014 (...) have filled up to the point of being functioning, normal cities I would be really, really skeptical of post-2012 reporting on China. I understand why people are increasingly anti-China (the Uyghur stuff is disgusting) but you really don't get close to a neutral perspective from most of the Western media.
- thereddaikon 5y ago
  Neither do you get one from China itself. Its hard to tell what is really going on when everyone has an agenda to warp reality.
  - whimsicalism 5y ago
    Totally. I found actually visiting China to be informative.
    - chii 5y ago
      There's a saying in chinese, which roughly translates to "seeing is understanding", and it is so true. You can only see the truth for yourself, and you need to see it with your own eyes.
  - smilekzs 5y ago
    FWIW, the quoted article is from Japan.

diveanon 5y ago

Who could have ever predicted this? Glad I’ve been building a solid crypto portfolio, looking forward to cashing in the last few years gains to buy some houses on the cheap again after the economy implodes.

tobltobs 5y ago
Last time the economy imploded (March 2020) BTC also fall apart.
paulpauper 5y ago
hmmm what is bitcoin doing on this news? it's evident crypto is not a hedge against uncertainty or bad news, but rather is highly correlated with the stock market and overall US economy.
- diveanon 5y ago
  Btc hit a new ath today along with eth…
l33tbro 5y ago
You do realize crypto is part of the same speculative bubble? And before the strawmen start piling up - that doesn't mean all crypto is forever useless, but right now crypto it is absolutely over-invested in relative to liquidity.

irthomasthomas 5y ago

Surprised Xi didn't just step in and pay the trifling sum.

ww520 5y ago

So those Tether "loans" to Evergrande are all gone up in smoke?

xwdv 5y ago

$148M correct? Seems small, like a fairly wealthy multi-billionaire could just pay that off in one fell swoop.

nwidynski 5y ago
This is just the interest payment on a $300B debt.
ncallaway 5y ago
My mortgage payment is small enough that a lot of people could easily afford a single payment if I had defaulted on it. That doesn’t mean they could just pay off the entire remainder of a mortgage. Paying off the current payment doesn’t deal with the remaining $300B debt that they need to service. It just kicks the can down the road a few days. Good luck finding a multi-billionaire that’s going to swoop in and make $148M payments on a regularly recurring basis for the next decade.

bob229 5y ago

Lol

rvz 5y ago

Translation: A crash is incoming.

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