Evergrande Crisis Intensifies

Patrick Boyle On Finance

Patrick Boyle

Investing, Business

4.9 • 320 Ratings

🗓️ 21 September 2021

⏱️ 9 minutes

🔗️ Recording | iTunes | RSS

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Summary

Send us a textThe liquidity crisis at Chinese property developer Evergrande shook global markets this morning with stocks falling in Asia, Europe and New York.The S&P 500 fell 2.1 per cent in afternoon trading, while the Nasdaq Composite slipped 2.6 per cent. The Vix, which measures expected volatility on the S&P, hit 26.5 — around its highest level since May.Monday’s sell-off came after shares in Evergrande, the world’s most indebted property developer, closed 10 per cent lower in Ho...

Transcript

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0:00.0	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.
0:27.2	Welcome back, everyone. Just a short follow-up on Evergrand. I uploaded my original video on
0:33.2	Thursday of last week, and since then, the story seems to have exploded. If you didn't watch
0:38.4	the last video, Evergrand is China's second largest property developer and it's also
0:43.8	the world's most indebted property developer with approximately $310 billion in liabilities.
0:51.3	The stock has been in free fall recently and it looks like the company is insolvent.
0:56.3	Back in 2018, China's central bank put together a list of companies that might pose systemic
1:02.2	risks to the nation's financial system, and Evergrand was near the top of that list.
1:08.2	The Chinese government are signalling that there will not be a bailout. The company
1:12.6	owes significant amounts of money to more than 128 banks and over 121 non-banking institutions.
1:20.5	As I'm sure you'll recall Lehman Brothers went under in 2008 due to their exposure to a collapsing
1:26.4	US property market and Evergrand's default
1:29.8	could not only hurt the financial sector in China, but its property liquidation could significantly
1:35.9	hit property prices in a country where property is unusually expensive as a multiple of incomes.
1:42.7	There's an awful lot of leverage in the Chinese property market.
1:46.9	Evergrand has been trying to sell their property portfolio at markdowns of as much as
1:52.1	25% in order to service their debts.
1:55.7	And this hasn't really been working.
1:58.0	They've a huge portfolio of property that might be unsellable. Their balance
2:02.5	sheet includes almost half a million parking spaces, for example. The fact that they are trying
2:08.3	to quickly sell is not good for the Chinese property market and there are many other property
2:13.8	developers with similar levels of leverage and hard-to-sell assets that will be
	...

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