In the latest signal that the level of corporate debt in China is threatening the broader economy, Chinese regulators Friday were forced to halt trading in bonds issued by Evergrande, the country’s second-largest property developer.
Fears that the Evergrande company would not be able to pay its debt obligations prompted a massive sell-off by investors, which flooded the stock exchange.
The massive sale of the company’s bonds – some for as little as 26 per cent of their face value – came after Bloomberg reported that two of the major credit lenders that gave large loans to Evergrande had demanded immediate payments.
The crisis at Evergrande comes just days after another major Chinese firm, China Huarong Asset Management, released a long-delayed earnings report showing that it lost $15.9 billion last year and that its debt-to-equity ratio at one point was 1.333% or up. more than 13 times.
The state-owned financial firm engineered Huarong’s bailout late last month to avoid a corporate collapse that could be catastrophic for the economy. However, there has been no indication of a similar move for Evergrande, which has sold assets to raise the cash needed to satisfy lenders. [ka/pp]