China Evergrande's debt crisis has investors on edge.
The world's second-largest economy could go into a financial crisis if the property developer goes belly up. The Chinese government is likely to step in to manage the situation in the shadows.
Warut Promboon, head of credit research at research firm Bondcritic, wrote in a note last month that the Chinese government should pay more attention to Evergrande.
We looked at how the Chinese Community Party has managed the collapse of three too-big-to- fail private companies in the last five years to get a sense of how the rest of Evergrande's debt drama could play out.
The government absorbed Anbang and is still trying to sell it off.
Anbang is a company.
Car insurance turned into a conglomerate.
Anbang started as a regional car insurer in 2004 but grew so much in a decade that it was able to buy the storied Waldorf Astoria hotel in New York for about $2 billion.
It was well connected. Deng Xiaoping is credited with helping to reform China's economy. Anbang claimed to have more than two trillion Chinese yuan in assets by the end of the year.
Anbang's downfall was sudden and swift. The police took him away from his office. He was sentenced to 18 years in jail for suspected economic crimes.
Chinese regulators took over Anbang and started a state-led restructuring of the technically insolvent insurer after the sentencing of Wu.
Anbang's core insurance and asset management businesses were transferred to a new state-owned company in 2019. Assets were sold to raise cash.
The Chinese insurance regulators ended their two-year takeover last year. China's insurance regulators said that the troubled insurer was able to pay short- and medium-term financial insurance on time.
The Chinese government is trying to sell its stakes in Dajia, which two state investors put up for auction in July. For what it's worth, it's holding onto the hotel.
Before it was allowed to go bankrupt, the bank underwent a government-managed restructuring.
The company is a bank.
Finance is a sector.
Tomorrow Group was a major shareholder of the small, obscure Chinese bank. The bank had assets of 90 billion Chinese dollars when it published its last annual report.
The Chinese government took over a small lender due to serious credit risks. It was China's first state bank seizure in more than two decades, and the move sent shock waves through the country's banking system. Tomorrow Group made improper and illegal use of bank funds.
The troubles at Baoshang sparked global concerns about bad loans at small lenders in China, the systemic risks in hundreds of such lenders in the country, and the domino effect of a financial intervention by the government.
The assets, liabilities, and businesses of Baoshang Bank were taken over by a Hong Kong-based bank.
State investors such as a national deposit insurance fund entered the restructuring process to inject funds into the new entity.
The People's Bank of China said that the injection of public funds allowed most of the debts to be repaid.
In August 2020, the company was allowed to file for bankruptcy. The new bank is still open.
The HNA Group was taken over by the government.
HNA Group is a company.
HNA Group started out as an airline in 1993 in the southern China region of Hainan and grew to become an aggressive dealmaker snapping up trophy businesses around the world using ultra-loose credit available in the 2010s. At the end of June, HNA had assets of $187 billion.
The company's global acquisitions were worth more than $50 billion and included stakes in hotels and banks. According to a note, many of its acquisitions were made at a high premium.
HNA employed 400,000 people around the world at its peak.
The Chinese government began to scrutinize HNA's acquisitions. The unraveling was similar to Evergrande's because of the government measures introduced in 2017: to minimize private domestic companies' risk exposure.
HNA's ability to pay off its debts was hit when banks stopped loans to the group because of regulatory scrutiny. It began selling assets to raise funds.
The company was scrutinized by foreign governments because of national security concerns.
HNA said it would focus on aviation, logistics, and tourism in the next year, but the Pandemic hit last year, impacting those sectors. The company was taken over by the Hainan provincial government. The main policy bank of the country, the China Development Bank, got involved.
HNA was placed in administration in February of 2021, and just last month, the company's debt was approved by its creditor.
Four separate units are focused on aviation, airport, financial, and commercial.
A bond specialist says that Evergrande will probably go to HNA Group.
China's second-biggest property developer, Evergrande, has $300 billion in debt. Warut said that the Chinese government is likely to manage a controlled implosion of the company. There are few options for stakeholders.
He said that the political system in China gives regulators heavy hands which will force collaborations among issuers, investors, and intermediaries who are often owned or influenced by the government.
Chinese officials have tried to calm the situation. They told Evergrande to resolve its debt problems and instructed the country's real-estate developers to pay their overseas bondholders.
Warut told Insider that Evergrande will likely go the way of HNA, having to sell down assets and manage risks step by step. The entire process is likely to take years, he said.
The authorities have asked government-owned firms and state-backed property developers to buy some of Evergrande's assets.
Instructions have been dropped to Evergrande to contain the aftermath. According to people familiar with the matter, Beijing has told the founder of Evergrande to use his own money to pay the company's debt. He seems to be complying with the directive, which was to pay down some of the debt by selling assets.
