Hong Kong’s Hang Seng index sank 2.2 percent after Evergrande’s suspension, while Tokyo’s Nikkei 225 dropped 1.1 percent. Shares fell 1 percent in Taiwan. Markets were closed for holidays in Shanghai and South Korea.
The company’s silence on its interest payment obligations has, however, left investors wondering if they will have to recognize significant losses when their 30-day grace periods expire, raising the prospect of a massive default in October.
Investors have been grappling with unknowns, including what the communist regime might do in response. S&P Global Ratings predicts that a bailout is unlikely, claiming Evergrande “is not too big to fail.”
Evergrande has been struggling to keep from defaulting on debts as it liquidates assets to address its cash crunch. The company owes billions of dollars to banks, customers, and contractors.
With liabilities of $305 billion, equivalent to 2 percent of the country’s annual gross domestic product (GDP), Evergrande has sparked concerns that its woes could spread through the financial system and reverberate worldwide.
The vast real estate sector is so overbuilt that it threatens to relinquish its longstanding role as a prime driver of Chinese economic growth and, instead, become a drag on it.
China’s house prices have soared over the past 15 years, often by more than 10 percent a year in large cities. Yet developers have borrowed considerable amounts in the process. The industry’s total debt is about $2.8 trillion, according to Morgan Stanley, a Wall Street investment bank.
