CUNY Brooklyn College Finance Evergrandes Default Crisis Paper

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Derivatives Paper Using the knowledge that you have acquired during the course, you need to prepare analysis of a specific corporate or specific country, investment fund, derivatives trader/investor or local government involvement in a derivative structured product or situation where significant losses have been suffered. You will need to give analysis of the specific background of the involved parties, provide detailed analysis of the situation, and explain the specifics of the derivative transaction. Note that your analysis and demonstrated understanding of the specific derivatives, not just presenting the numbers, formulas, etc., is the most important aspect of this project. Your paper MUST include your conclusion regarding the situation, and offer an alternative path stating how the situation could have been prevented. It also MUST include a bibliography of information and works cited. The papers should not exceed 15 pages, double spaced. The paper is to be prepared using the APA writing style and guideline for references format. They must contain a bibliography and all direct quotations and data sources must be properly cited. . The Department uses the APA style as it lends itself well to both reading the paper and understanding references without being cumbersome as some of the other styles are (such as Chicago or MLA). Students can download the student style guide from the American Psychological Association web site or you can purchase the APA style guide from the book store. Papers are to be RESEARCH PAPERS. Remember that work that you use from other authors MUST be referenced. Since it is assumed that you are not an authority on the topic that you are writing on it is expected that this paper is an overview of many different sources of information. These must be contributed to the author using the APA format. This is your paper and not the cut and paste of someone else's work. The internet has led to a false sense of what research is all about. Those new to research tend to think that it means spending an afternoon surfing the internet and then an afternoon cutting from material available. Keep in mind the internet is: (1) not quality oriented as it has good stuff and not so good stuff but the internet does not know the difference and (2) the internet is NOT a sole source location. In particular, sources such as Wikipedia are the works of individual submitters which are not reviewed. Thus while many entries provide excellent information, some are fundamentally flawed or just plain wrong. Keep in mind that the Boston University Library as well as your local, state and the national US Library of Congress have extensive on line services. USE THEM. Term Project: The Cross Border Debt Default by Evergrande Real Estate Group Evergrande Real Estate Group, one of the largest existing real estate companies in China, was declared officially in default by S&P Global on December 17, 2021, after the share price plunged due to failure to pay interest on cross-border bonds within the required time frame. The share price also fell from HK$31 to HK $1.16 (nearly US $0.15) when the stock market was redeveloped after a one-day suspension, bringing a huge US$46 billion to Evergrande Group and the entire Chinese real estate market, of which Evergrande Group lost US$17.2 billion.This term paper mainly focuses on the reasons for Evergrande's default and the subsequent impact on the financial economy of China and the world if it goes bankrupt.
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Name
Institution
Course
Date
Outline on Evergrande's Default Crisis
Thesis Statement: Evergrande’s default status was caused by its inability to meet its financial
obligation
1. Introduction
a. Background on the Evergrande Group
2. Evergrande Group Default Crisis
a. Summary on Evergrande’s default crisis
3. Reasons for Evergrande’s default
a. Summary on the reasons for Evergrande’s default crisis
i. Poor Management
ii. Reckless and blind expansion
iii. National policy
iv. High leverage ratio
v. Insufficient cash flow management
4. Impact of Evergrande's Bankruptcy
a. Summary on the impact of Evergrande’s bankruptcy
5. Impact of Evergrande's Bankruptcy on China's economy
a. Summary of bankruptcy impact on the Chinese economy

i. Lost Investments
ii. Crumbling of the real estate market
iii. Other sectors would crumble.
iv. Increased unemployment
v. Credit Crunch
6. Impact of Evergrande's Bankruptcy on the world
a. Summary of bankruptcy impact on the global economy
i. Foreign investments
ii. Ripple effect of the Chinese economy
iii. Impact on Asian Stock indexes
7. Conclusion
a. Summary on the research paper


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Evergrande's Default Crisis

Name
Institution
Course
Date

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Table of Contents
Introduction ..................................................................................................................................... 3
Evergrande Group Default Crisis.................................................................................................... 3
Reasons for Evergrande’s default ................................................................................................... 5
Poor Management ....................................................................................................................... 6
Blind and reckless expansion ...................................................................................................... 7
National Polices .......................................................................................................................... 8
Insufficient cash flow management ............................................................................................. 9
High leverage ratio ................................................................................................................... 11
Impact of Evergrande's Bankruptcy .............................................................................................. 12
Impact of Evergrande's Bankruptcy on China's economy......................................................... 12
Lost Investments .................................................................................................................... 13
Crumbling of the real estate market ...................................................................................... 13
Other sectors would crumble. ................................................................................................ 14
Increased unemployment ....................................................................................................... 14
Credit Crunch ........................................................................................................................ 15
Impact of Evergrande's Bankruptcy on the world ..................................................................... 15
Foreign investments ............................................................................................................... 15
Ripple effect of the Chinese economy .................................................................................... 16
Impact on Asian Stock indexes .............................................................................................. 16
Conclusion .................................................................................................................................... 16

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Introduction
The Chinese real estate market is on the brink of collapse, with its property sales likes to drop
by 30% this year (Cai, 2022). Since the People's Republic of China was founded in 1949, the
country has experienced severe housing shortages, poor housing conditions, and cases of
overcrowding. Subsequently, the country responded by investing more funds in housing, thus
improving the general situation. The real estate market is currently facing a steep decline with
constant declines in sales and a growing number of homebuyers suspending their mortgage
payments. A critical factor in the real estate market crisis is the companies that operate within the
sector including the Evergrande Group. It is the second largest developer in the Chinese real estate
market, and was founded in 1996 by Xu Jiayin (Sun & Cao, 2021). Xu started the company to
target middle-class Chinese citizens, and in 2009, the company went public. The company had
ambitious projects, making the founder one of the wealthiest men in China and the world.
However, there was not so much that could attribute the company's rise as the first cracks began
to show when the central bank of China added the Evergrande Group to a list of the highly indebted
conglomerate to watch, thus signaling its potential collapse. Currently, the property giant has
liabilities that pass $300 billion as it has subsequently failed to meet interest payments to its
international investors. Therefore this financial risk threatens to declare Evergrande Group
bankrupt. In this research paper, I aim to explore the reasons for the company's default and the
subsequent impact on China's economy and the rest of the world.
Evergrande Group Default Crisis
Evergrande Group has been crowned the world's most indebted company, and this gets worse
by the day. The company has liabilities that exceed $300 billion as it has failed to meet the interest
payments of its international investors. The act of the company missing the deadline of interest

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payments has prompted Fitch to declare the company default. Thus investors have been pulling
away due to the financial risk that would snowball across different sectors, such as the banking
sector. Since the company went public in 2009, it has attracted numerous investors from across
the globe, thus making it the second largest developer in the real estate market in China. A publicly
traded company, therefore, has an obligation to its shareholders and investors. Still, Evergrande
Group failed to meet the most important of all obligations: interest payments on time to address
its default crisis. The company has recently been looking to offset some of its assets to raise the
funds it needs to pay back its investors, consumers, and suppliers. However, the company is still
failing to meet...


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