Investors of Evergande, which has a shortage of liquidity and has a known debt of 300 billion USD, are worried about the risk of bankruptcy these days. The Chinese real estate giant said in its filing on the Hong Kong stock exchange that it expects a "significant" decline in sales to continue this month. Evergrande is trying to sell some assets to ease its liquidity crunch, but said these efforts have yet to yield results. Evergrande also warned that its escalating distress could lead to wider default risks.
A significant decline in real estate sales, as predicted in September, could worsen the company's cash position. Evergrande's sales have been falling steadily since June. The company said this would lead to "continuous disruption of cash collection by the Group, which would put tremendous pressure on the Group's cash flow and liquidity." Another explanation is as follows: “September is typically the month when real estate companies in China record higher contract property sales. However, continued negative media reports about the Group have dampened the trust of potential property buyers in the Group”. While the company continues its efforts to create liquidity, rating agencies have repeatedly lowered ratings since last year. This puts an upper limit, or high cost, on borrowing. Becauseof that; The company will continue to take measures to "strictly" control costs, stimulate sales and alleviate liquidity issues, including disposals of assets.
On the verge of all these conditions, the company warns its investors of default: “Given the difficulties and uncertainties in liquidity recovery, there is no guarantee that the Group will be able to meet its financial obligations under the relevant financing documents and other contracts”. Failure to pay or restructure the debt (which requires negotiation and agreement with the creditors) can cause the company to fall into a “cross-default” situation under the current financing arrangement and related creditors requesting payment, let's expand the concept here. Cross-default means that if the borrower defaults on one loan, it also defaults on other loans. In other words, even if there is no breach or default in other loans, the default rules apply there as well. Let's say that a borrower who defaults on a mortgage is also considered default on a car loan. If your debt is small, it's your problem, if it's big, it's everyone's problem.
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