Following the failure of Chinese real estate giant Evergrande to raise $2.6 billion in a major sale last week, the value of its shares plunged a further 14%, causing losses in the European market today.
Evergrande, which is beset by debts reaching $300 billion, has been defaulting on its financial obligations for months and failing to sell 51% of its real estate services unit to Hopson Development as it had hoped, its situation becomes even more dire, according to News FR24 Oct. 21.
As a result, stock market indicators in London, Paris, and Frankfurt recorded losses, following the same downward trend that had already affected the Asian stock markets.
Thus, in Japan, the Nikkei (^N225) lost 1.9%, while the main Chinese stock index on the Hong Kong Stock Exchange, Hang Seng (^HSI), lost 0.8%.
However, the negative effect did not substantially affect the U.S. stock market, which was commented on by Michael Hewson of CMC Markets.
“This American exuberance is not translating into today’s European openness… after Asian markets came under pressure with Evergrande shares being crushed again as trading picks up there…,” Hewson noted.
Evergrande failed in its attempt to raise $3.5 billion, according to Sky News business editor Ross Greenwood. That means it has no money to pay interest and catch up on late payments.
In fact, Evergrande missed interest payments on its bonds due Oct. 12, marking the third round of missed bond coupon payments in three weeks.
The company’s total liabilities are equivalent to about 2% of China’s gross domestic product (GDP).
Evergrande’s bankruptcy would mean the destruction of millions of direct and indirect jobs, as well as a mammoth economic catastrophe for investors from several countries. However, its main creditors are Chinese banks and investors.
“And, of course, many of them will lose significant amounts of money if this company goes bankrupt,” Greenwood added, referring to shareholders.
Having missed $277 million in coupon payments on its overseas bonds so far, Evergrande has to pay another $573 million before the end of this year.
In recent weeks, Evergrande’s debt crisis has sparked fears of rapid contagion in China’s $50 trillion financial systems, which account for a quarter of the country’s economy.
The threat is such that U.S. Secretary of State Anthony Blinken urged the Chinese communist regime to “act responsibly” in the face of the risk posed to the stock market by the bankruptcy of real estate giant Evergrande.
“China has to make sovereign economic decisions for itself, but we also know that what China does economically is going to have profound ramifications, profound effects, on literally the entire world because all of our economies are so intertwined,” Blinken said in an interview with Bloomberg last month.
He added: “So certainly when it comes to something that could have a major impact on the Chinese economy we look to China to act responsibly and to deal effectively with any challenges.”