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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
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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...