Opinion | Evergrande a case study in being too big to fail despite 350b yuan liability
Mainland developer's massive debt a case study of China's bad loan problem and the banks and wealthy investors who stand to benefit from it
For those wanting to get below the surface of China's bad debt problems, nothing is more instructive than a look into the 350 billion yuan liability at Evergrande Real Estate Group.
That figure is not a typo. The Guangzhou-based developer has accumulated a liability 10 per cent higher than the 2013 gross domestic product of Beijing. That includes a 90.9 billion bank loan, 44.5 billion yuan in perpetual bonds that are held by banks and their high-net-worth clients and 61 billion yuan in trust borrowings.
How the developer - sitting on 250 per cent gearing - will pay it all back is not the key question; the real puzzle is why the banks and the wealthy went for it. Then again, for a manager of a city bank lending to Evergrande is a dream come true. As a household name, it's everywhere: the country's top soccer team, the buildings and the bottled water. And it is one of the country's top developers.
Of course, your bank is eager to grow its loan book and bottom line in order to join the IPO queue. After the big boys have already scooped up the big-name deals, Evergrande is the next best.
In some cases, the bonds have been repackaged into products to be sold to highnet- worth clients
No wonder the list of Evergrande's principal bankers grew from 14 to 21 in 2013 - mainly city commercial lenders.