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While Evergrande Finds Short-Term Solution, Fears Linger Regarding Potential Collapse

October 18, 2021 Blog

Evergrande, the Chinese real estate developer that has become the poster child for high-risk overseas investing, narrowly escaped default in mid-October by securing $83.5 million to make a last-minute interest payment. However, this has done little to alleviate concerns in the market, as the firm still has more than $350 million to pay by the end of the year—and it still owes more than $300 billion overall. As investment fraud attorney Jake Zamansky recently discussed, an Evergrande default could have significant ripple effects for individual investors in the U.S., and those who suffer losses may be able to pursue claims against their brokerage firms in FINRA arbitration.

S&P Report: Defaults in the Chinese Real Estate Sector are On the Rise

As if the concerns regarding Evergrande weren’t enough on their own, Reuters reports that rating agency S&P has seen an uptick in defaults within the broader Chinese real estate sector. In other words, Evergrande’s enormous overseas debt is not the only concern.

According to S&P, companies in the sector have approximately $84 billion in bond payments coming due by the end of 2022, with “the first peak of debt payments” due in January. While an Evergrande default might be the biggest risk related to the excessive debt accumulated by Chinese real estate development companies, smaller defaults could still have significant impacts for investors who hold bonds through their brokerage firms.

What Happens if Evergrande Defaults on Its Overseas Bond Debt?

So, what happens if Evergrande defaults – or if other Chinese real estate development companies default – on their overseas bond debt? While this might seem like a relatively isolated concern, the implications are enormous.

As CNN explains, “Worries over defaults by Chinese property developers have spooked international investors and could make it more difficult for the companies to refinance their debts.” A default would only make these worries worse, and this could lead to a downward spiral if Chinese companies cannot secure the refinancing they need in order to avoid defaults. When companies default, the path to recovery is long and arduous – if a path to recovery exists at all – and this means that investors stand little, if any, chance of recouping their losses in the market.

However, investors may have other options available. Brokerage firms such as BlackRock, UBS and HSBC have invested heavily in Evergrande and other Chinese real estate development company bonds despite growing awareness of the risks involved. As a result, individuals who invested through these firms may have grounds to pursue claims in FINRA arbitration. Investors should continue to monitor the saga as it unfolds, and they should seek legal advice promptly if they experience investment losses.

Speak with an Investment Fraud Attorney at Zamansky LLC

Zamansky LLC is an investment fraud law firm located in the heart of Wall Street. Our attorneys are actively monitoring the Evergrande saga, and we are prepared to represent investors who suffer losses in the event of a default. If you would like to speak with an investment fraud attorney about Evergrande, please call 212-742-1414 or contact us online today.