In this September 14, 2021 breaking‑news podcast, host Anthony (Speaker B) and financial journalist Eddie Donmez examine the escalating crisis at China’s Evergrande Group, one of the world’s most indebted property developers. They outline Evergrande’s staggering $310 billion in liabilities, imminent $7 billion debt maturities and $670 million in coupon payments, and explain how a severe liquidity crunch—stemming from an inability to finish and sell projects—has driven its shares down 80% YTD and sparked protests. The discussion moves to possible government responses, noting the Chinese Communist Party’s recent crackdown on tech firms and suggesting a limited state intervention rather than a full bailout, with advisors like Houlihan Lokey and Admiralty guiding a restructuring that may involve fire‑sale of assets. They assess the contagion risk to creditors (e.g., BlackRock) and equity holders, estimating that bondholders might recover only ~25% while shareholders could be wiped out. The hosts also highlight Evergrande’s diversified but vulnerable subsidiaries—electric‑vehicle and wealth‑management arms—raising concerns about broader systemic spillovers into global markets, especially as Wall Street sentiment turns bearish. The episode concludes with a plug for the upcoming Amplify Me platform.
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It is Tuesday, the 14th of September, and we're doing a new breaking podcast on Tuesday. It's a little earlier than our normal Friday slot. I'm joined by Eddie Donmez to talk about something you may have read about, but a company you might not know a lot about, which is Evergrande, which is one of the world's most indebted companies. Its shares have tumbled 75% this year. And it's sparking fears among what analysts are saying, a risk of contagion spreading from China and their property market to potentially not just domestically, but to foreign shores. So, Eddie, who are Evergrande?
Yeah, Evergrande, probably not too familiar for the general Western public viewers, but very familiar in China. But it's a very, very large property property developer. So everyone's now terming this China's Lehman Brothers moment, or if Evergrande is going to be the next Lehman Brothers. So this story has really been rumbling on for a while, actually. Their shares are down 80% year to date, but it's really reaching fever pitch at the moment. There's riots and protests outside the offices of Evergrande. And of course, now there's serious fears that this company could go through a bankruptcy. And there's a kind of difference between a Chapter 11 bankruptcy and a Chapter 7. They've now hired Houlihan Lokey as one of its kind of bankruptcy advisors. Just yesterday they were talking and basically dismissed the rumor that they were facing kind of bankruptcy fears, but now this is really kind of coming to a head.
And what's led to this? Why are they in trouble then?
They've got $310 billion— yes, I said billion— in liabilities. They've got $7 billion of debt due next year, and I think $670 million in just coupon payments due this year, so just the coupon payments. They've got a huge amount of debts, but not only debts. Of course, liabilities we associate with debt. Basically to pay creditors. They've also got things like accounts payable, kind of a boring accounting term. But what this basically translates into is kind of payments for suppliers for things like raw materials. Of course, they've got the wages for the employees, the rest of the kind of inputs for their kind of construction costs. So they're in this really wicked liquidity crunch at the moment because, of course, Property developers, they build properties, right? But unfortunately, they don't have enough liquidity to finish the projects that they're already working on to then sell, to then finance the new construction. So they're in this kind of liquidity crunch where it's really kind of spiraling out of control.
So leads to the question then, what's next? Surely the government needs to step in at this point.
Of course, context is everything. And as we've seen, the CCP has been really clamping down on mainly the technology sector. So the names like Alibaba, for example, and we all know Jack Ma went missing last year. But they've also been kind of crunching down on really data companies, technology companies, user data. So now this is something that they really do not want to deal with, I'm sure. But whether a kind of state bailout is kind of warranted at the moment or desired is probably not, not too true. They're most likely— there probably will be a kind of state intervention of some kind, but they will not want to kind of bail out Evergrande completely. But of course, they've hired Houlihan Lokey and Admiralty to kind of advise on this reorganization. Potentially what could come next is a kind of fire sale of assets. So to just to put into context as well, the revenue of this company monthly has dropped from $11 billion a month to $5 billion from kind of June to August of this year. So their sales have dropped off a cliff. Um, they've been providing kind of discounts, like 30% discounts for their properties to kind of get them sold. But this is still not working. So they're in a real kind of pickle, to put it lightly. And yeah, the government is going to have to step in in some capacity. It's just really to what extent. But so in terms of the kind of contagion element of this, of course, it's the property developer itself, it's the creditors. So those that have kind of lent money, it's the shareholders, the equity holders, which are likely to get nothing. And these are kind of Some of the top holders of Evergrande are big names like BlackRock. So there, the equity is likely, if there is a liquidation, they're likely to be zilch. So that equity will be worth nothing. Now, the credit holders, so the dollar-based, so the dollar-denominated Evergrande bonds are likely to get something in a best-case scenario of something like 25% of their money back. Um, but of course, you know, that's not guaranteed. Um, so it's a, it's a real pickle that they're in. They probably will need, uh, some kind of state intervention, but they may just kind of claim the assets and step in. And it could be this kind of weird scenario where they've got what they wanted, uh, if you like, where they've kind of seized— they're able to seize the assets and seize control.
Yeah. And in the context of the global markets at the moment, there's been an awful lot of growing chorus on Wall Street turning a little bit bearish about the general US stocks picture. And this is just probably another variable to throw in the mix at the moment. There was a Deutsche Bank sentiment survey came out yesterday that found 58% of professional investors see a 5 to 10% correction by year end. It's like people are just looking for ammunition at the moment. So I'm sure this story is going to get a lot of airplay today when we open in the US.
Yeah, definitely. I think the mood music, as a kind of— Piers and I were discussing in the podcast before last, has kind of got a little bit more somber with the kind of general economy sentiment kind of falling off a cliff. Um, but really the Evergrande story is now becoming potentially a systemic risk when you add on all of these different types of things. Um, and again They're not just a property developer. They have electric vehicles. Their electric vehicle arm shares were down 22% yesterday. And they have kind of other, you know, correlations with other kind of different products. They have wealth management arm. So there's a lot of kind of different risk out on the horizon. And this kind of could spill over. But it's definitely a story now to have on top of the radar, I would say.
Cool. All right, well, thank you, Eddie. And just for the listeners, we're going to be doing lots more of these kind of breaking news podcasts, YouTube videos, Instagram Reels, and so on. So remember, we've got the new Amplify Me platform launching actually tomorrow, 15th of September, so you can check that out at www.amplifyme.com. But Eddie, thanks, and I'll catch you for the next episode.
