Evergrande the next Lehman?
2 min read
Just when people had started recovering from the fear of the world pandemic – COVID 19 which started from Wuhan China, China gave another shock to the world with Evergrande.
The world is calling Evergrande of China the Lehman moment that might lead to financial crises all around the globe. Many in India are comparing Evergrande with IL&FS as well.
Evergrande was valued at $50 billion 2 years back which has come down to $5 billion today that is a meltdown of 90% valuation. The company has 1300 ongoing projects in 218 cities of China and owns 2% of the total real estate of China. Many buyers are waiting for 1.6 million apartments.
So why the Lehman or IL&FS moment of China? Because the company owes a debt of $300 billion i.e., Rs. 2.2 lakh crores and the company is defaulting in its payments. On Monday when Evergrande defaulted for one of its payments the global stock market slumped sharply.
According to Bloomberg richest, 500 people around the globe lost a combined valuation of $135 billion. In India, the metal segment that had been surging since the start of the year tanked sharply on Monday. The major reasons as being considered for the fall are the new restrictions on home sales and even on borrowings which Evergrande did heavily.
Not just companies related to Evergrande but also related to China in any way is seeing a downfall all around the world making it call the Lehman moment. It is expected that the Chinese Banks might be able to take the hit of Evergrande but China’s property boom that started in the mid-1990s has resulted in three-quarters of China’s household wealth locked in real estate.
The Evergrande crises might leave a deep scar on such investors.
Another payment of interest is due on Thursday which might decide the fate of crises. Is this the Lehman Moment or will the Chinese Government step in to resolve the problems? Will this crisis in the second-largest economy of the world have a ripple effect on other economies?
