China’s Evergrande: Un-real estate
Nothing in China is straightforward, but everything happens for a reason.
If something looks too good to be true, it usually is. When a company acts irrationally, cagey investors have learned to ask why.
Take the example of Evergrande, which has endured a turbulent past few days.
The real-estate group is a whopper, with Rmb2.3 trillion ($337 billion) in assets. It is also highly leveraged, with debts of $122 billion at the end of June.
About a week ago, a letter emerged, purportedly sent by the firm to the government of Guangdong. In it, Evergrande said it faced a cash crunch unless it was allowed to complete a backdoor listing on Shenzhen’s main bourse by January.
Rue the outcome
Evergrande fumed, calling the letter “fabricated”, but the message it contained could not, if you are an investor or a regulator, have been clearer or less veiled.
It warned that letting a firm of its size default on its debt embodied the kind of risk China usually abhors. It openly pondered the bankruptcy of thousands of related businesses and the loss of more than three million jobs.
Whether by default or by design, the message was clear: let the Shenzhen listing happen and help us survive or rue the outcome.