Don’t expect Beijing to provide direct support for Evergrande, S&P says – .

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Don’t expect Beijing to provide direct support for Evergrande, S&P says – .


Outside the China Evergrande Group Royal Mansion residential complex under construction in Beijing, China on Friday September 17, 2021.
Gilles Sabrie | Bloomberg via Getty Images
The Chinese government is unlikely to step in to provide direct support to debt-ridden developer China Evergrande Group, according to S&P Global Ratings.
“We don’t expect the government to provide direct support to Evergrande,” S&P credit analysts said in a report released Monday. “We believe that Beijing would only be forced to intervene if there was a large-scale contagion causing the failure of several major developers and posing systemic risks to the economy. “

“The failure of Evergrande alone would lead to little chance in such a scenario,” they added.

Even in the home province of Evergrande, the developer is insignificant to Guangdong’s vast local economy – it’s not too big to fail.

Fears of potential contagion from Evergrande to the wider Chinese economy and beyond caused the Hang Seng index in Hong Kong to fall more than 3% on Monday. The liquidation continued around the world.

Evergrande is the most indebted developer in the world and has accumulated around $ 300 billion in debt. He is due to make a number of interest payments for his bonds starting Thursday. S&P said “default is likely” on these payments.

“We believe the Chinese banking industry can digest an Evergrande default without significant disruption, although we are mindful of potential spillover effects,” S&P said.

In Tuesday morning trading, Evergrande shares in Hong Kong fell about 4% – its seventh straight session of decline, although far less than Monday’s more than 10% drop.

The president of Evergrande tried to reassure the markets on Tuesday and said the company will shoulder its responsibilities to property buyers, investors, partners and financial institutions, Reuters reported on Tuesday citing local media.

“Not too big to fail”

S&P analysts compared the fallout from Evergrande to the case of Chinese bad debt manager Huarong, which triggered a market rout earlier this year when it failed to release results on time and its bonds denominated in US dollars plunged.

“We don’t expect government actions to help Evergrande unless systemic stability is threatened,” S&P said. “A government bailout would undermine the campaign to bring greater financial discipline to the real estate industry. “

Instead of a bailout, Beijing could facilitate negotiations, negotiations and financing to ensure that individual investors and home buyers are “protected as much as possible,” analysts said.

“The government is ready to help, but also wants events to take their course. Even in the home province of Evergrande, the developer is insignificant to Guangdong’s vast local economy – it’s not too big to fail.

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