Investors are not sure whether Chinese authorities will be able to contain the fallout from a possible disorderly collapse of the heavily indebted company. The situation is made worse by the fact China will be closed in observance of the Mid-Autumn Festival until Wednesday.
But Evergrande’s Hong Kong listed shared fell a further 13% as its market cap dropped to its lower ever level as a potential bankruptcy looms large. The company was due to pay interest on bank loans on Monday and some $83.5 million in interest on Thursday for its offshore March 2022 bond. Failure to make these payments will mean default, which appears likely as Chinese authorities have apparently already told major lenders not to expect repayment.
If the problems ended with Evergrande then there wouldn’t be too much of an issue as far the wider financial markets are concerned. But this could have repercussions on many other companies. So, the contagion risks may be much wider than the markets currently expect. Equally, a lot depends on how China’s authorities will respond to this crisis. Will they bail the company out, or let it collapse and make an example of it?
China is also cracking down heavily on other key sectors in the economy, providing additional uncertainty hanging over the Chinese markets and economy.
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