One of China’s largest-ever debt restructurings is looming, with the Communist Party now in the driving seat.
While the state’s intervention has quelled fears of a disorderly collapse that would jolt the world economy, investors who hold Evergrande bonds are wondering how much of their money they’ll see after the dust settles.Evergrande, founded in 1996, grew through massive borrowing. It owns more than 1300 projects in 280 cities, according to a company website; at the end of June, it was committed to building the equivalent of about 1.4 million individual properties, according to Capital Economics.
A bailout would tacitly condone the type of reckless borrowing that’s landed one-time high-flyers like Anbang Group Holdings Co. and HNA Group Co. in trouble as well. On the other hand, allowing a big, interconnected company like Evergrande to collapse would reverberate across the financial system and also be felt by many millions of Chinese homeowners. Such pain could stir discontent. David Qu, an economist at Bloomberg Economics, said authorities may follow the principle that guided the seizure of Baoshang Bank Co. in 2019: prioritising social stability, with a “bail-in” of institutional investors to be used when needed.
This year’s defaults on offshore bonds from Chinese borrowers set an annual record, with the property sector making up about one-third of those missing payments, according to data compiled by Bloomberg.
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