Will Chinese Property Giant Evergrande’s Debt Default Spark The Next Asian Financial Crisis?

The huge Chinese property company, Evergrande, is repaying investors in its wealth management business with property instead of cash this week. The world's most indebted real estate developer faces a crunch this week while investors fear a default.

Major banks have reportedly already been informed they will not receive interest payments on loans that are due this week and further interest payments of $84m (£61m) on the firm's bonds are due on Thursday.

The company's shares dropped by more than 10% in Hong Kong trade on Monday, but are down 90% on its 52 week high.

The multi-billion dollar property business deepening debt problems have triggered fears over the impact its potential collapse could have on China's, as well as the western world’s, economies.

Evergrande grew to be one of China's biggest companies by borrowing a massive $300bn (£217bn).

The Beijing government has recently brought in new laws to control the amount owed by big real estate developers to stave off a potential debt crisis.

This led Evergrande offering properties at major discounts to ensure money was coming in to keep the business afloat, is still struggling to meet the interest payments on its debts.

This uncertainty has seen Evergrande's share price tumble by almost 90% on last year and bonds have also been downgraded to ‘junk’ by global credit ratings agencies.

Businessman Hui Ka Yan founded Evergrande, formerly known as the Hengda Group, in 1996 in Guangzhou, southern China. He is worth $10.6bn, according to Forbes, but that figure may need updating.

Evergrande Real Estate currently owns more than 1,300 projects in more than 280 cities across China.

Evergrande Group now encompasses far more than just real estate development and includes businesses range from wealth management, making electric cars and food and drink manufacturing. It even owns one of country's biggest football teams - Guangzhou FC.

Too much diversification outside of the core business can stretch management and lead to problems.

How will it affect the world if Evergrande collapses?

Thousands of Chinese investors riding the wave of a booming market have bought property from Evergrande ‘off-plan’ even before building work began. They have paid deposits and could potentially lose that money if it goes bust.

The companies that do business with Evergrande stand to lose millions if the company fails to pay outstanding invoices. Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.

There are rumours of hundreds of unfinished projects where unpaid constructions firms have downed tools.

The more worrying aspect is the potential impact on China's entire financial system.

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