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Evergrande seems like China’s Lehman moment, reminds of IL&FS, says Uday Kotak – Moneycontrol

Uday Kotak is of the view that the Budget for FY22 was conservative in its revenue estimates, because if which a 6.8 percent fiscal deficit can be managed.

The crisis surrounding debt-ridden Chinese property giant Evergrande seems like China’s Lehman moment and reminds of IL&FS collapse in India, Kotak Mahindra Bank Managing Director and CEO Uday Kotak said on September 21.

“The Indian government acted swiftly. Provided calm to financial markets. The Government appointed board estimates 61% recovery at IL&FS. Evergrande bonds in China trading ~ 25 cents to a $,” Kotak tweeted.

Kotak is heading a team of experts to rescue Infrastructure Leasing and Financial Services Ltd (IL&FS) and repay its creditors. The infrastructure giant collapsed in late 2018 following a liquidity crunch.

The expected collapse of the debt-ridden Chinese property giant has set off panic in global markets over fears of contagion.

Shares of Evergrande plunged to over a 11-year low on September 20, extending losses with executives trying to salvage its business prospects as default fears grow over a looming deadline for payment obligations this week.

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its $305 billion of liabilities could spark broader risks to the country’s financial system if not stabilised.

One of Evergrande’s main lenders has made provisions for losses on a portion of its loans to the embattled developer, while some creditors are planning to give it more time to repay, four bank executives told Reuters.

The developer said on September 19 it had begun repaying investors in its wealth management products with real estate.

Policymakers are telling Evergrande’s major lenders to extend interest payments or rollover loans, and market watchers are largely of the view that a direct bailout from the government is unlikely.

Also read: Asia markets, yuan fight to stabilise as Evergrande looms large

Evergrande is due to pay $83.5 million interest on September 23 for its March 2022 bond. It has another $47.5 million interest payment due on September 29 for the March 2024 notes. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande will need to restructure the bonds but analysts expect a low recovery ratio for investors.

Trading of the company’s bonds underscored just how dramatically investor expectations of its prospects have deteriorated this year.

Major US stock indices tumbled at the start of trading on September 20 as traders braced for the fallout from the expected collapse of debt-plagued Chinese property giant Evergrande.

The boss of a Shanghai-based property developer lost more than a billion dollars, as fears over the potential collapse of Chinese real estate giant Evergrande sent panic across Hong Kong trading floors.

Zhang Yuanlin, chairman of Sinic Holdings Group, saw his net worth drop from $1.3 billion September 20 morning to $250.7 million by the afternoon, according to Forbes, when his firm was forced to halt trading in Hong Kong following an 87 percent slump in its share price.

IL&FS collapse aftermath

On April 15, Il&FS Board said it had addressed aggregate group debt of Rs 43,000 crore till date through sale of assets and through other cash receivables.

It has also raised the debt recovery target to Rs 61,000 crore, the company said as part of its quarterly update on the progress of the ongoing group resolution process.

“The Group has further enhanced its estimates of aggregate debt recovery to Rs 61,000 crore—an increase of Rs 5,000 crore over its earlier estimate of Rs 56,000 crore. The increased estimate represents resolution of nearly 62 per cent of overall fund based and non-fund based Group debt of approx. Rs 99,000 crore, as of October 2018,” the company said.

The aggregated debt of Rs 43,000 crore represents nearly 71 percent of the overall revised targeted recovery value of Rs 61,000 crore and 44 percent of the overall debt of over Rs 99,000 crore (as of October 2018).

(With inputs from agencies)