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Evergrande: China faces ‘challenging trade-offs’ in addressing developer’s debt crisis, IMF says

  • Early intervention could minimise risk of contagion, reinforce ‘too big to fail’ mentality, IMF says
  • Evergrande missed three more offshore bond payments due Monday

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Evergrande’s The Vertex project in Cheung Sha Wan. Photo: K.Y. Cheng
Chad Bray
Beijing is facing “challenging trade-offs” as it seeks to address the crisis surrounding embattled developer China Evergrande Group and the pressure it is placing on the country’s property sector, according to the International Monetary Fund (IMF).

As part of its Global Financial Stability Report released overnight, the IMF said China has the tools in place to contain and manage any potential financial stress associated with the potential collapse of Evergrande, the world’s most indebted property developer.

“The broader the support measures, especially if accompanied by an actual or perceived relaxation of the broader effort to de-lever the financial system over time, the greater the risk of financial fragilities re-emerging in the future,” the IMF said. “Similarly, earlier and clearly communicated intervention would likely minimise the risk of contagion, although at the cost of reinforcing a perception of individual firms being too big to fail.”

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Evergrande, China’s biggest residential home builder by sales last year, is struggling under the weight of US$305 billion in total liabilities following years of expansion beyond its core property businesses and concerns about its ability to repay its massive debt load are roiling financial market globally.

02:25

Unpaid by Evergrande, supplier sells car and home to rescue his business

Unpaid by Evergrande, supplier sells car and home to rescue his business

The Shenzhen-based property developer missed three interest payments due Monday on its offshore debt, pushing it closer to default after missing two similar coupon payments on its dollar-denominated debt in September.

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A group of bondholders said on Friday that the company had not had a “meaningful dialogue” with them since missing last month’s payments and that they were worried about assets bleeding to other creditors. Subcontractors and suppliers also say they have been struggling for months to get paid, potentially exacerbating the economic effects if the company goes under.
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