Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.

Welcome back, just a quick video today on Ever Grant, the struggling Chinese property developer.

There's a ton of news right now asking if the collapse of Evergrand will be China's Lehman Brothers

moment, so let's discuss. Well, Evergrand is a huge company. It's China's second-largest

property company and the world's most indebted property developer. They have liabilities of over

$310 billion, so it's a big deal. In 2018, when China's

central bank put together a list of companies that might pose systemic risk to the nation's financial

system, Evergrand was near the top of that list. The stock is down around 80% year-to-date,

and the company appears to be insolvent.

Now, what might surprise you is that the company has never reported a loss and they've had current assets greater than current liabilities in every accounting period in the company's history.

So what's going on? Well, investors became worried about

Evergrand around this time last year when a leaked letter from the company showed that they

had begged the government for support to approve a now-dropped backdoor listing plan.

The company claims that this letter was a forgery. The leaked letter said that the

company's liabilities involve more than 128 banks and over 121 non-banking institutions. They

admitted this Tuesday that they're under tremendous pressure and may not be able to meet their

debt obligations.

For a borrower of that size,

late payments on these debts could trigger cross-defalls.

As many financial institutions have exposure to Evergrand

via either direct loans or through indirect holdings

through different financial instruments.

...