Evergrande Defaults: Contagion Risk To Spread?

Evergrande DEFAULTS – Contagion risk will spread to crypto, institutional investors, pension funds and more

By Mike Adams

Evergrande, China’s Ponzi property developer, is now officially in default as Fitch has confirmed the indebted company has missed interest payments on bonds, with over $300 billion in bonds outstanding. Property developer Kaisa is also named in the default decision, and there are nearly a dozen other Chinese property developers that are widely believed to be on the path to default.

“This is not just a default of Evergrande, this is a default of China and the banking system,” Dan David told Fox Business this morning (see video below). “Now they’re going to have their Bear Stearns moment,” he added, referring to the 2008 sub prime housing bubble collapse in the USA.

We have warned for several weeks that this default had already happened, telling our readers it was only a matter of how long it would take for the ratings agencies to catch up to the reality of the default.

Evergrande’s public share price plunged on Monday, just one business day after Evergrande issued a letter stating it could not sustain its debt repayment schedule.

Importantly, Evergrande is prioritizing domestic debt holders in China and has been ordered by the Chinese government to bail on overseas debt holders. This means any non-China holders of Evergrande debt are going to be lucky to eventually get paid 10 cents on the dollar for the Evergrande paper they hold. More likely, they will get next to nothing.

Contagion will spread across the global financial system throughout 2022

As we all learned from watching the 2008 sub prime real estate market collapse, large-scale defaults take time to ripple through the financial system. While Evergrande is officially in default today, holders of its debt — who are due interest payments from Evergrande — will have their own grace periods for making their own debt interest payments to their debt holders. Typically, these grace periods are 30 days in duration, meaning every 30 days or so, we are likely to see defaults down the line, all stemming from Evergrande failing to meet its own obligations. (Everybody is leveraged, and one catastrophic financial event can ripple through the entire system over time.)

Throughout 2022, we are all going to witness extreme financial stress — and many possible defaults — spreading through various institutions that held Evergrande debt. This can affect pension funds, hedge funds, institutional investors, private investors and even central banks. Every investor who held Evergrande debt is going to get hammered by this default, especially if they were expecting Evergrande’s interest payments in order to meet their own debt obligations. 

Contagion has begun