Because Evergrande will not be a new Lehman. Report
According to consulting firm T-Commodity, the Evergrande case is not similar to that of Lehman Brothers. The real estate group is "too big to fail" and the Chinese government will intervene. that's how
Chinese real estate group Evergrande, burdened with a debt of 305 billion dollars, announced that it has reached an agreement to make a payment, by tomorrow, of 232 million yuan (36 million dollars) in interest on domestic bonds.
The statement calmed the minds of the markets somewhat, which are looking with fear at the consequences of a hypothetical collapse of the company, although Evergrande has not said anything about the payment of 83.5 million dollars in interest on the bonds (also foreseen for tomorrow) and to that of 47.5 million next week. Evergrande's debt is mainly internal to China.
THE EVERGRANDE-LEHMAN BROTHERS COMPARISON
Much is being discussed about the Evergrande case because the fate of the company, which risks default, is linked to the wider Chinese economy, writes Reuters : from investors in the real estate sector to companies that deal with infrastructure, whose demand for raw materials moves. markets (such as copper, used in construction).
Many comparisons are also being made with Lehman Brothers, the large US investment bank that went bankrupt in 2008 due to its inability to meet its debt, whose bankruptcy contributed to the global economic crisis known as the “Great Recession”. In other words, it is feared that Evergrande's bankruptcy extends not only to the entire Chinese economic-financial system, but to the global one.
RISK OF CONTAGION IN CHINA?
It is also perhaps unlikely that a hypothetical default by Evergrande could threaten the overall stability of the Chinese financial system. According to analysts at the British bank Barclays , for example, the current market conditions are very different from those in which the collapse of Lehman Brothers occurred. It is therefore unlikely, the bank argues, that "even a major default" by Evergrande will become "China's Lehman moment".
According to US investment bank Citigroup, Evergrande's default levels are low when compared to the size of China's economy, the second largest in the world.
WHAT S&P THINKS
The S&P rating agency said it thinks China's banking sector is capable of absorbing an Evergrande default without suffering too significant an impact. “Evergrande is small compared to the total loans of Chinese banks. The banking sector's direct exposure to Evergrande also appears to be well distributed ”among various institutions.
THE T-COMMODITY REPORT
T-Commodity , a commodity consultancy firm, thinks Evergrande is "too big to fail" and expects Chinese government intervention to restructure the group, probably by spinning off its assets and dividing them among various real estate development companies.
More than the Lehman Brothers case, according to T-Commodity "the collapse of Long-Term Capital Management in 1998 is a better analogy". Long-Term Capital Management, an investment services firm, was recapitalized through a bailout led by the Federal Reserve, the US central bank.
Globally, according to the T-Commodity report, the biggest impact of the Evergrande crisis will be felt by the commodity markets: copper, in particular, could lose value given the lower demand from Chinese manufacturers.
WHAT THE CHINESE CENTRAL BANK HAS DONE
The People's Bank of China, the central bank, proceeded with an injection of 120 billion yuan ($ 18.6 billion) into the banking system through passive repurchase agreements.
Eugene Leow, an analyst at DBS Bank in Singapore, told Bloomberg that the injection aims to calm markets over the fate of Evergrande. He then explained that, although the Chinese authorities want to rationalize the real estate sector and "instill discipline" in operators, they also want to "prevent contagion" of the default of the company "in the real economy or in other sectors".
Bloomberg sources said Evergrande was unable to repay interest to at least two of its largest bank creditors on Monday.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/evergrande-lehman-brothers-report-t-commodity/ on Wed, 22 Sep 2021 10:30:34 +0000.