Outside the residential development of the China Evergrand Group Royal Mansion under construction in Beijing, China, Friday, September 17, 2021.
Giles Sabri | Bloomberg via Getty Images
According to the S&P Global Rating, the Chinese government is unlikely to take steps to provide direct assistance to debt-ridden developer China Evergrand Group.
“We do not expect the government to provide any direct assistance to Evergrand,” S&P credit analysts said in a report on Monday. “We believe Beijing will be forced to take action only if a far-reaching transition occurs that results in multiple major developers failing and creating systemic risks for the economy.”
“Such a scenario would not result if Evergrand failed alone,” they added.
Fears of a possible transition to the Chinese economy from Evergrand and Hong Kong’s Hang Seng index dragged more than 3% on Monday. Sales continue around the world.
Evergrande is the world’s fastest-growing developer and has raised about 300 300 billion. This is due to pay several interest for its bonds from Thursday. S&P said there was a “default probability” on these payments.
“We believe that the Chinese banking sector can digest an evergreen default without any significant disruption, although we will be aware of the potential knock-on effects,” S&P said.
In Tuesday morning’s trading, shares of Evergrand in Hong Kong fell nearly 4% – the seventh session of the decline, though much lower than Monday’s 10% decline.
The chairman of Evergrand tried to reassure the markets on Tuesday and said the company would fulfill its responsibilities to property buyers, investors, partners and financial institutions.
‘Not Too Big to Fail’
S&P analysts likened the fall of Evergrand to Chinese bad debt manager Huang, which caused a market crash earlier this year when it failed to report earnings in a timely manner and its US dollar-numbered bond sank.
“We don’t expect government measures to help Evergrand unless systemic stability is at risk,” S&P said. “A government guarantee would undermine the campaign to establish greater financial discipline in the property sector.”
Instead of a bailout, Beijing could facilitate negotiations and funding so that individual investors and home buyers are “as safe as possible,” analysts said.
“The government is willing to help, but the events want to take their course. Even in Evergrand’s own province, the developer is insignificant to Guangdong’s huge local economy – it’s not a big deal to fail.”