Shannon Brandao on LinkedIn: Evergrande: liquidation would leave China with 1.5mn angry homebuyers
💯🏆🎯 FT [excerpt]: An abrupt turn of events has bought yet more time for #China #Evergrande Group. A #HongKong judge has postponed a court hearing into a…
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From the article: "💯🏆🎯 FT [excerpt]: An abrupt turn of events has bought yet more time for #China #Evergrande Group. A #HongKong judge has postponed a court hearing into a #liquidation petition until January. That gives the embattled #property developer longer to finalise a debt #restructuring plan.

Offshore #creditors, such as petitioner Top Shine Global, may not realise quite how much #power they now wield over China’s property and #banking sector.
Evergrande is the world’s most indebted developer. It has been working for about two years on a #debt restructuring it hopes will stave off liquidation. Fresh breathing space lifted battered shares more than 9 per cent on Monday.
Offshore creditors have shown little enthusiasm for the debt restructuring proposals. One cannot blame them. A brutal haircut is a likely outcome. Beyond that, prospects for the developer look bleak.

The payouts from a court-approved liquidation are hardly appealing either. Analysts anticipate a recovery rate of below 5 per cent. Evergrande has more than $300bn in liabilities.

For Beijing however, getting offshore creditors to agree to a restructuring is of paramount importance.

The biggest risk comes from an estimated 1.5mn #homebuyers that have already paid Evergrande for unfinished homes. These dwellings are estimated to have an original value of $90bn. Beijing may have to cope with social discontent if Evergrande is liquidated and the projects cannot be completed.

A restructuring would also alleviate pressure to support state-owned banks. Their returns are eroding amid slowing economic growth and a falling property market.

The impact on #lenders is growing. Banks do not just have direct exposure through mortgages and loans to developers. They are also exposed to the country’s #shadowbanks. These non-bank financial institutions often lend to higher-risk industries such as real estate. The financings are frequently through wealth management products that are held off balance sheet.

Zhongzhi, one of the biggest shadow banks, may have a shortfall of $36bn. It has warned that it is 'severely insolvent'.
The liquidation of Evergrande would set a dangerous precedent for struggling peers. Evergrande had always been outlier. But a domino standing at the extreme end of a line tumbles most peers through indirect impacts. Foreign #investors have yet to comprehend the full extent of that danger."

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