The Dow Jones Industrial Average fell by as much as 0.79% Friday mid-day while the S&P 500 and Nasdaq moved as much as 1.55% and 2.83% lower at mid-day. Indeed, US stock indices that were trading in the green earlier in the day turned negative following the news. Should Evergrande default on its debts, it threatens to increase risks across the Chinese real estate sector and possibly spread to the broader global financial markets, often drawing comparisons to the collapse of US investment bank Lehman Brothers back in 2008. The People’s Bank of China supported the move but said, “Evergrande’s problem was mainly caused by its own mismanagement and break-neck expansion.” Market reaction Upon this news the people’s government of Guangdong province agreed to send advisors, who are given the task with resolving Evergrande’s risks, enhancing its internal risk management and maintaining normal business operation. “In the event that the Group is unable to meet its guarantee obligations or certain other financial obligations, it may lead to creditors demanding acceleration of repayment.” “In light of the current liquidity status of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” Evergrande said in the statement. Evergrande is already late paying $82.5m in interest payments due on 6 November, Reuters reported. The Chinese real estate developer has struggled to pay more than $300bn ( £226bn) in liabilities on its books – $19bn of which are dollar bonds – culminating in a demand from creditors this week to pay some $260m due, according to Evergrande’s disclosures on the Hong Kong stock exchange. Evergrande warns of possible debt default - Photo: ShutterstockĬhinese governmental officials on Friday agreed to send a team of advisors to real estate company Evergrande to “resolve its risks” as the company warned it could default on its sizable financial debt obligations.
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