InvestorQ : Can you tell me about what went wrong in the Evergrande crisis in China?
vaishnavi mhatre made post

Can you tell me about what went wrong in the Evergrande crisis in China?

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vidhya Laxmi answered.
2 months ago
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Evergrande is not an internationally renowned name like Tencent or Alibaba, but systemically quite important. It is China’s second largest realty company with over 1300 projects development and under developed in its roster. Unfortunately it is also one of the most leveraged companies with debt of $305 billion, and most of them on the verge of default. But how exactly did Evergrande get to this solvency crisis.

The problem was that most realty companies in China are leveraged, just that Evergrande stretched itself too much. For example, Evergrande sold property units at wafer-thin margins and used the revenues and inventory for more borrowings. Problems arose when the Chinese government came down heavily and put credit limits on realty company debt based on a number of leverage ratios. Evergrande was the worst hit as it tried to reduce debt.

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