Evergrande Was A Time Bomb Waiting To Go Off

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This week Evergrande defaulted with a mere $85.2 million payment which is just the start of what is coming. In August the company announced that they were having some financial issues and that the road ahead was not going to be easy. In October the company made a $83.2 Million payment which was the last payment made as the latest $85.2 Million was delayed by 30 days giving them time to accumulate what they could. This is not including the other payments they have skipped which were 3 rounds of coupon payments totaling $280 million. Looking at the data sheet we can now add another $82.4 million to the coupon payments missed now standing at over $360 Million.

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Evergrande owes well over $300 Billion which is a sizeable number and it is now ina catch 22 situation. In order to raise more capital they need to complete and sell the properties which are on hold as they have no funds to pay suppliers and staff. Cash flow is the business killer as without paying everyday bills nothing can be accomplished.

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This business is like a deck of cards as the business model is that fragile. Evergrande are not on their own in this mess as the second biggest the Kaisa Group has also defaulted on $400 Million bond payments.

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The problem with the Chinese property developers is they have leveraged everything they are doing which makes them owe more than they own. Sounds crazy considering all the developments they have been building are not selling with many remaining empty. At some point this model had to fail as it is a boom or bust policy.

Just in September the Chinese property sector had $1.2 Trillion in loans that were outstanding. Evergrande is one of many problems and this entire sector is going to come tumbling down. This type of business using credit sounds more like a pyramid scheme as this will catch up at some point as you owe more than you have. There is plenty more Evergrande's going to hit the headlines over the coming months and how many banks are going to be hit by these? The numbers we are talking about are too big for bailouts and they will go under.

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Warning signs have been flashing for months not only with Evergrande and this is now coming to a head. Beijing has to step in as this is a huge embarrassment as they want foreign investment in China. China will be seen as a high risk investment depending on the outcome from this fall out. I just feel sorry for every business connected to these developers as what chances do they have after this?

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Many may say so what as that is China and doesn't affect us but it will in an around about way. China has 143 companies in the top 500 companies by turnover and something like this could create waves around the world. We saw the last time when the economies of the world went into a recession due to banking irregularities. Evergrande is around half of what the Lehman Brothers owed and if we add the other developers who are also failing that figure rises rather quickly. A recession is never that far away it seems and fortunately we have crypto.

Posted Using LeoFinance Beta



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2 comments
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Happy i'm out of stocks and in crypto!

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Gonna be huge shockwaves in the financial world once they fully default, just a matter of time and the shockwaves will likely hit crypto in some way too given how recent events have.

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