The company promised to pay debts with local bonds, and its shares subsequently rose after several months. Evergrande is near a default that could hit all the markets on a global scale.
This Thursday, September 23, the Central Bank of China decided to inject 18.6 billion dollars into banks in that country to avoid a worrying financial crisis due to the default of the real estate company Evergrande Group.
After the real estate company confirmed that it had difficulties paying millionaire debts, the amount disbursed by the entity amounts to more than USD 50,000 million in seven days.
According to a report made by Bloomberg, this introduction of money from the Chinese government to solve Evergrande crisis is equivalent to 120,000 million yuan. This injection would be happening through reverse buyback agreements.
This procedure includes securities at a certain price to sell in the future at a higher price. Due to the features of the methodology and its costs, the net cash addition would be 90,000 million yuan (USD 13,945 million).
The Central Bank of China injected USD 14,000 million last Friday, September 17, but the country had also added a slightly higher amount on Saturday 18.
In the same vein as its bank debts, Evergrande’s stock is also crumbling down. This fall generates consequences in the international stock markets since many investors that the firm owns are banks from nations such as Canada, the United States of America, and Australia.
However, amid the disturbance experienced in recent weeks, the financial market received a breath of fresh air after Evergrande announced that it would pay its debt maturities this week with local bonds for at least 232 million yuan (USD 35 million).
These decisions get reflected in Evergrande’s shares on the Hong Kong Stock Exchange, which rose 17% in the last 24 hours, after various months of almost uninterrupted decline.
Evergrande Might Become the New Lehman Brothers
Evergrande Group is the second-largest real estate company in China and had been struggling with liquidity problems for some time.
Due to these problems, the company would now have difficulties with a debt that might surpass USD 300,000 million to its creditors. Some creditors are banks in China and other entities around the world.
As a consequence of this failure in one of the most important firms in the Asian country, the fear of a new global financial crisis, such as Lehman Brothers in 2008, has been growing in recent weeks.
China has already disbursed just over USD 50,000 million, approximately 12% of what the United States of America had available as a financial injection in 2008.
How the Crisis in China Affects Cryptocurrencies
The cryptocurrency market is not exempt from such a crisis that could occur in stock markets worldwide. On September 20, this media reported that the decline in the market capitalization of cryptocurrencies would have reached USD 225,000 million, representing a drop of 11% in 24 hours.
The funds that got invested in cryptocurrencies got moved elsewhere. This migration came in parallel with a fall in the price of cryptocurrencies such as bitcoin (BTC), which could not detach from the red figures of the stock market, and whose value decayed more than 9% in just a few hours.
By: Jenson Nuñez
