Evergrande: Everything about crisis that triggered 'Lehman moment' talk

China's Evergrande Group is under a humongous financial crisis, which has shaken the global stock markets. US index majors Dow and S&P fell by over 1% each and Nasdaq and Russel 2000 corrected by above 2% on Monday.

Such is the magnitude of the crisis that talk of a "Lehman moment" has rung loud this week among the investors who are worrid about the replay of the bankruptcy of Wall Street titan Lehman Brothers during the 2008 global financial crisis.

The Evergrande Group

It is predominantly a developer based in China. The group employs 200,000 people, and has a presence in more than 280 cities. Evergrande claims to indirectly generate 3.8 million Chinese jobs.

Varied interests

The Evergrande Group has diversified into many fields and owns an electric car unit. It also has investments in tourism, digital operations, insurance and health sectors.

It has been on a buying spree for more than a decade. In this time, Evergrande bought Guangzhou FC and turned it into a highly successful club, set up the popular Evergrande Spring mineral water and opened amusement parks it boasted were "bigger" than Disney's.

The problem

Such investments require huge sums of money. So, Evergrande founder Xu Jiayin went for gargantuan borrowings. The company now has more than $300 billion of debt, which is equivalent to two per cent of China's GDP, and it is having trouble paying that back.

Evergrande and other real estate firms' relentless borrowings led the Chinese government to introduce measures aimed at reining in such things. The move severely curtailed the group's ability to finish properties and sell them to repay its debts.

The banks who lent money to Evergrande have given up hopes of getting it back, but want the group to make due payments on two bonds. The deadline ends on Thursday, and if the company fails to make the payments, it is widely forecast to default.

What happens if Evergrande defaults?

The real estate sector is a crucial engine of the Chinese economy. It has played key role in the country's post-pandemic recovery. So, any bankruptcy could send repercussions across the country's economy.

However, analysts feel that the Chinese government could let that happen just to send a message that no company is too big to fail and that they cannot rely on the central government to bail them out.

However, the debt-laden group's chairman wrote a letter to the staff saying he is confident the company will "walk out of its darkest moment", news agency Reuters reported.

Analysts, meanwhile, say it is unlikely to become a Lehman Brothers-like crisis. They say the conditions are different in this case. "I do not think it will be at that kind of level, because I do not see any kind of a securities product that's been kind of securitised off from Evergrande's books itself" said Kelvin Wong of CMC Markets.

(With inputs from agencies)