While debt is taken to scale up business in the corporate world, its over-burdened situation leads to a crisis similar to Evergrande's- the Chinese second leading real estate developer by sale, on the verge of collapsing due to huge debt.
The company which is seen to default by a huge quantum has led to global sell-off. On the panic, the US markets also started on a sluggish note, with US tech related Nasdaq down by over 2 percent as of writing this report.
Evergrande debt crisis:
Ranked among the Global fortune 500 companies', Evergrande- China based real estate leader has been under scrutiny for long and now as there is a high risk of debt default which is majorly in cash and given paid out by its customers for home projects that have not been completed. There is huge panic in the markets as customers demand their money back. The extent of debt default is seen to be to the tune of over $300 billion, which the real-estate firm owes to creditors and other businesses, as well as an important interest payment deadline looms with respect to its offshore bonds this week.
Impact of the unfolding Evergrande crisis on local stock market
On the development, the Evergrande stock with ticker symbol settled lower by 10 percent in the Hong Kong markets and casted a knee jerk reaction all across the globe. On a yearly basis, the stock is down as much as 85 percent.
Assets which lost to Evergrande crisis
Not just real estate stocks of Hong Kong ended in the red, there was a spill over reaction reaching to the US markets. Though, the growth concerns continued to weigh in the US other than the US Fed meet which is eagerly looked upon, leading to decline in the US markets apart from the Evergrande impact.
Cryptos or digital tokens which have lately gathered investors' interest on skyrocketing gains to them also saw sell off with some of the notable cryptocurrencies, including the likes of Bitcoin, Ripple and Cardano declining up to 13 percent.
Is the extent of Evergrande's crisis similar to the US' Lehman Brother crisis?
While the latest crisis is being compared to the US Lehman Brother crisis that troubled markets 13 years ago, there is seen less risk of financial contagion.
"The 'China's Lehman moment' narrative is wide off the mark," Simon MacAdam, senior global economist at Capital Economics, said in a report. "On its own, a managed default or even messy collapse of Evergrande would have little global impact beyond some market turbulence".