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Evergrande shares plunge as much as 87% as trading resumes after 17 months

cnbc.com

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Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#51

Post by yazaddaruvala »

dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

They sold more than they have created. Ie they need money to finish the ones they have sold.

And they have excess debts that their assets no longer cover because the housing market crashed.

Additionally, they just took on obscene debts. The banks did not do the appropriate due diligence (hypothesis is the local governments interfered).

But I know only what rando YouTube videos have told me.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#52

Post by helsinkiandrew »

dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

It's not a problem in itself, but a sign of the destress the company is in. Evergrande has huge debts and is struggling to pay suppliers. It has started (or received payments for) hundreds of thousands of units that could be abandoned if the company goes bust (many already are), leaving many people with nothing but mortgages for property that doesn't exist.

https://www.reuters.com/world/china/unfinished-evergrande-ap...

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#53

Post by raincole »

dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

Philosophically the problem is always about how to distribute wealth instead of how much wealth we have. I'm not saying the problem of China. I mean the problem of humankind.

Practically, just like any other real estate developer, they have tons of unfinished projects and now we don't know the future of them. And of course it's just one of the problems.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#54

Post by simonh »

dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

Evergrande sells apartments before they are built to fund construction, and the purchasers pay mortgages during the build. If the company has insufficient funds to complete ongoing construction, which gets delayed, purchasers stop paying their mortgages and the company goes into a death spiral. Meanwhile purchasers get shafted, buildings stand uncompleted, and construction workers and materials suppliers see demand collapse.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#55

Post by csomar »

dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

It's a bit more complicated than that even if they have delivered all the houses. If they owe other companies huge amounts of money that they issued through debt bonds (and sold internationally), then it can affect companies and banks that are not related.

Their physically ability to deliver homes is not what's at stake here.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#56

Post by dirtyid »

bobthepanda wrote: post #46
zeroCalories wrote: post #14

Earlier quoted context omitted.

Meh. I understand property is pretty much the only viable investment a person can make in China, but these investors should have known what they were buying. Makes me think of idiots that lost big in crypto. The bubbles value has already been spent, so someone is going to have to bag hold. Either the government should buy and forgive all the debt, or the investors should get fucked for overplaying their cards. Maybe…

The issue is that the bubble should’ve popped probably even five or ten years ago, but then the government allowed credit extension and the bubble kept on. The recent hard lines, with no sign of easing after multiple defaults, is a new thing.

TBF arguably RE bubble was being addressed 5-10 years ago, there was domestic construction slump in 2012-2017 - where indicators like floor space completion and construction employment peaked. Then 2017 crack down on shadow banking which drove developers + local gov to increase presales, turning it into a financial instrument to keep the taps going. Then hard 3RL in 2020. Could have probably smashed skulls sooner and harder though.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#57

Post by andreareina »

hebrox wrote: post #43
NotYourLawyer wrote: post #30

Why isn’t it down 100%? According to the article, they’re in bankruptcy with way more liabilities than assets. Presumably the shareholders are getting wiped out.

As I understand from this "The Plain Bagel" video [0], they're not bankrupt. Instead, they're likely nearing the completion of their debt restructuring. [0] https://www.youtube.com/watch?v=c-n6RN8a2Zo

They're restructuring their debt because they're bankrupt.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#58

Post by bboygravity »

yazaddaruvala wrote: post #51
dvh wrote: post #49

Can someone explain to me why is this problem? The houses that they've built are still standing, people can still live in them, what's the problem?

They sold more than they have created. Ie they need money to finish the ones they have sold. And they have excess debts that their assets no longer cover because the housing market crashed. Additionally, they just took on obscene debts. The banks did not do the appropriate due diligence (hypothesis is the local governments interfered). But I know only what rando YouTube videos have told me.

TLDR: there's a huge regulatory crisis going on in both the US and China markets (again). Now the failure of 1 large entity can crash entire empire(s).

Basically the same corruption that societies have been battling ever since societies existed.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#59

Post by csomar »

0xffff2 wrote: post #26

Having read the article but not heard of Evergrande prior to this, what are the implications of this outside of China? The article mentions that the company filed for bankruptcy in the US, but not what US operations/developments they had.

They have $340bn of debt; even if they default on the whole amount, it's only 10% of China currency reserves.

The problem, however, is not the nominal amount but how the company network is inter-connected with other companies (either abroad or locally). This amount, albeit not colossal (by China relative size) could trigger effects in other companies that will lead to their failure. This will go on until it becomes a full international crisis.

Of course, it could mean that just some rich intercontinental people have lost money on some Chinese developer bond. The thing is, no one knows. Not the leaders of the CCP nor the US do have insights whether this can go somewhere to just stop here.

Re: Evergrande shares plunge as much as 87% as trading resumes after 17 months

#60

Post by ManuelKiessling »

hojinkoh wrote: post #35
xwdv wrote: post #4

Feels bad for the people paying mortgages for homes they’ll never get to see. They can’t just stop paying either. Doesn’t work that way.

In the city I'm aspiring to buy a house (a.k.a. somewhere near Tokyo), you only need to put the down payment if the construction hasn't finished yet. There will be no mortgage until after the house is ready. I kind of think this may be a slightly better model in terms of homebuyer protection... (May not sound good for the developer though)

When a flat I‘ve bought in Germany was constructed, the payment to the developer happened „Zug-um-Zug“, that is, they received a total of like 7 payments as the development reached certain milestones.

Had to take the whole mortgage up front in one go, though.

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