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Chinese Real Estate Giant Evergrande Teetering on the Brink of Bankruptcy

Published: September 3, 2021
HONG KONG, HONG KONG - AUGUST 21: A view of the LED Screen atop China Evergrande Centre (Advertiser: Samsung) on August 21 2018 in Hong Kong, Hong Kong. (Image: S3studio/Marcio Rodrigo Machado/Getty Images)

Evergrande, one of the world’s most indebted real estate developers, is reportedly so crippled with debt that it is teetering on the brink of bankruptcy. 

The company, which employs upwards of 200,000 people and claims to indirectly generate 3.8 million jobs in China, has a presence in more than 280 cities throughout China. Its bankruptcy would have devastating effects on the Chinese economy. 

On Tuesday, Aug. 31 during a first-half earnings report Evergrande stated that it would be implementing measures to improve cash-flow, adjust project development timetables and renew borrowing and disposing of equity interests and assets but cautioned that if it was not successful it could potentially default on loans and experience further litigation. 

While the company did experience a jump in asset sales recently, its income that includes non-controlling interests slid by a staggering 29 percent. In addition, its gross profit margin nosedived by 12.9 percent in the first half of the year down from 25 percent a year ago.

The company’s stock, which was trading at over $US 25.00 per share in July this year, has plummeted and is valued at just $US 3.90 per share as of September 3, 2021. The stock has lost more than 70 percent of its value this year.

The group has stated that its total liabilities have ballooned to a staggering 1.97 trillion yuan or $US 305 billion. 

“At least two of China Evergrande Group’s largest non-bank creditors have demanded immediate repayment of some loans, according to people familiar with the matter, adding to liquidity strains at the world’s most indebted developer.” Bloomberg reported. 

The non-bank creditors are trust companies which pool assets from wealthy individual investors and are a major source of financing for the struggling company as well as other Chinese investors. 

The company’s president, Xu Jiayin, was ranked as the fifth richest person in China in a recent wealth report from Hurn. 

While the company is predominantly a real estate firm, in recent years the company has attempted to diversify its business operations. 

Other than real estate the firm is best known for its football club Guangzhou FC, formerly Guangzhou Evergrande. In addition, the company dabbles in a flourishing mineral and food market with its Evergrande Spring brand. The company also builds and operates amusement parks that they boast are bigger than their rival’s, Disney.

Evergrande is also known to dabble in invested tourism, digital operations, insurance and health.