Uday Kotak Says “Evergrande seems like China’s Lehman moment. Reminds us of IL&FS,” after China’s Evergrande Group’s survival hangs in the balance. Investors are concerned, as the issue has been compared to the global financial crisis of 2008.
They are concerned that the crisis may repeat the failure of Lehman Brothers in 2008.
The brewing crisis surrounding Chinese real estate company Evergrande, according to Kotak Mahindra Bank CEO Uday Kotak, Evergrande might become China’s Lehman moment.
On Tuesday, global stock markets were gripped by contagion worries triggered by China Evergrande’s financial woes, as fears that the property behemoth would default on its large debt pushed investors to leave riskier assets.
In early Asian trade, selling pressure remained strong ahead of a key test for Evergrande this week, as the company is set to pay $83.5 million in interest on its March 2022 bond on Thursday.
It owes another $47.5 million in March 2024 notes, which is due on Sept. 29.
“Evergrande seems like China’s Lehman moment. Reminds us of IL&FS,” Kotak said in a tweet on the microblogging website Twitter.
Over the last three years, Evergrande, China’s second-largest real estate developer, has been mired in a credit crisis. However, a significant portion of the company’s $300 billion in obligations is set to retire or be subject to interest payments this year.
The company is also cash-strapped, as the Chinese government has urged state-owned lenders not to give new credit to it, despite the fact that it has billions of dollars in stranded real estate inventory.
With the corporation’s payments to two banks due on Thursday, all eyes are on whether the company would default.
As he drew a link between the Evergrande catastrophe and India’s own Lehman moment when “too-big-to-fail” shadow banks IL&FS went bankrupt, Kotak predicted a rapid response from the Chinese government.
“Indian Government acted swiftly. Provided calm to financial markets,” Kotak said.
The banker, who is also the non-executive chairman of IL&FS, stated that the government-appointed IL&FS committee intends to recover 61% of the debt due by the non-bank lender.
Global stock markets continued to fall as investors worried about contagion from the impending bankruptcy of Evergrande, a debt-ridden Chinese property developer, and investors were also concerned about rising wholesale gas prices.
IL&FS defaulted on its debt commitments in September 2018, causing a liquidity crisis in the financial services business. The government acted quickly, appointing hand-picked nominees to the IL&FS board.
The government’s recourse to the legal path to handle the problem was followed by protracted rounds of agency investigations, a forensic audit, the board’s own study and analysis to comprehend the depth of the rot, and the government’s turn to the legal method to settle the crisis.
Evergrande has been in a buying frenzy for more than a decade, employing 200,000 workers in more than 280 places and claiming to indirectly produce 3.8 million Chinese employment.
According to Reuters, the debt-ridden property developer’s chairman expressed confidence in the company’s ability to “walk out of its darkest moment” in a letter to employees.
