Rating agency Fitch has declared Overseas Bonds of China’s Evergrande company as a default. This is because the company has failed to pay interest. It was scheduled to make a payment of $8.82 million on Monday, but the company failed.

The incident has made the Chinese government afraid that many more companies may be affected. Evgrande said in an exchange filing on December 3 that it will be actively engaged with offshore credit payers under its restructuring plan. According to reports, Evergrande did not make outstanding payments on some US dollar bounds despite the last deadline being set on Monday. This led to this default.

Last Friday, Evergrande sought help from the government of their home province of Guangzhou. Instead, the government had agreed to send a working group to assess and help the company’s issues.

Fears of a cross-default increase in the international capital market at a bond of about $19 billion have now increased. This will further affect the confidence of the property sector and global investors. Evergrande did not pay $82 million for interest payments usually made on December 6 on two sets of dollar bonds until the end of the 30-day grace period on Monday.

More debt is in Mainland China

Most of Evergrande’s debt is in Mainland China, but the company has about $20 billion in international bonds. In recent months, Evergrande has avoided defaults on several occasions by making overdue interest payments on dollar bonds shortly before the grace period ends. The company has sold the property to raise cash. Its founder and shareholder have also recently sold a large part of its shares. Some of these creditors expected Evergrande to pay their dues on Monday.

$8.35 million to be repaid by March

Evergrande is scheduled to pay $8.35 million in interest by March 2022. On the other hand, it has to pay Rs 4.75 crore as interest by September 23, 2022. In recent weeks, real estate developer Evgrande had been scrambling to pay off loans and raise cash. Evergrande is China’s second-largest real estate company. It has a debt of $300 billion. This debt is 2% compared to china’s GDP (GDP). It has 1300 projects in 280 cities. Apart from housing, Evergrande has also invested in electric vehicles, sports, theme parks, etc.

The company also has a food and beverages business. The company’s troubles began when the Chinese government imposed severe restrictions on taking advantage of the housing market. Besides, rising construction costs, lack of supply, and global inflation have also been the reasons for putting the company in jeopardy. This adversely affected the profit margins of the company.

As of December 2020, Evergrande’s 15 lakh units were incomplete. China’s Central Bank had also put $18.6 billion in the banking sector, but Evergrande defaulted. Evergrande has only 4% of its annual property sales in China. After this company, the country garden here also owes $300 billion. Defaults by realty companies may bring down house prices. The real estate sector contributes 29% of China’s economy.

Evergrande’s default will have a greater impact on countries that depend on China. Evergrande has a debt of 128 banks. 21 non-banking finance companies have also given loans. HSBC Bank’s $20.69 million investment is in Evergrande’s bonds. UBS and Blackrock have invested $27.5 and $37.5 million in their bonds.

Evergrande’s 2 lakh employees

There are 2 lakh employees working in Evergrande. Every year it generates 3.8 million direct and indirect jobs in China. Companies manufacturing steel, metal, and iron ore in India sell 90% of their goods to China. Evergrande is also one of the biggest buyers. If the company sinks, exports between China and India will also be affected.

Sunshine 100 is also on the verge of sinking

On the other hand, another major Chinese company is on the verge of sinking. It is also a developer and is associated with housing projects. Its name is Sunshine 100. The company said on Sunday that it had failed to pay for a $17million loan and had crossed its deadline. The company has an interest of $8.9 million which it is unable to repay.

The Chinese developer had reported in August 2021 that he was unable to repay the principal and interest of the loan. The default is expected to cause turmoil in the real estate business. Sunshine 100 reported on Sunday that the uncertainty in the real estate industry and China’s economic environment has seriously affected the company’s economic situation.