What Does It Mean If Evergrande Defaults On Its Payments?

Evergrande, the world’s most indebted developer, stumbled over the finish line for yet another payment that brought it close to defaulting.

Nov. 11, 2021

Ah Evergrande, you thought we’d forgotten about you? Of course not.

The alleged harbinger of a second housing crash was teetering on the edge of defaulting before making an eleventh-hour loan payment deadline.  

Why does this matter?

Well, aside from being the most-indebted builder on this little blue rock in space, Evergrande is also the world’s largest property developer. The Chinese mega-group is currently saddled with more than $300 billion in liabilities.

When news of its dire situation broke back in September, it sent international markets into a tizzy. Chinese stocks crumbled and suddenly everybody and their mother was talking about ‘inflation’ — I’m sure you’ve seen the memes. 

But Evergrande passed its first big test yesterday. The company, though still deep in the red — like, Mariana Trench deep — managed to make coupon payments totaling $148.1 million. So, it avoids defaulting for now, and ‘Big Short’ fears can be tucked away in the meantime.

There is still a massive red flag hovering over Evergrande though as it has MANY more payments to go. For those worried about what happens if it does default though, it may not be the apocalyptic event you fear. Sure, it could cause a credit crunch and severely strain the country’s financial sector, spelling trouble for the Chinese economy. 

This wouldn’t be great, but for the global economy and the average investor, the impacts seem much less severe. International exposure accounts for just $19 billion of its debt, and there will be no Lehman Brothers-sized defaults across the U.S. financial sector from this. If anything, it’s a reminder to investors that China is a high-risk region, and to expect a lot of fluctuation among Chinese stocks in the coming years.

For a complete write-up on Evergrande, check out this Insight from our team.

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