The Chinese Evergrande company’s liquidity problem affects Scandinavia

 

The Chinese Evergrande company has build up an almost impressive debt

The liquidity problems that the Chinese real estate building company Evergrande has found itself in is making waves through the world economy. Evergrande has a collected debt of $305 billion. This figure roughly equals the BNP of Denmark. In recent times the company has been unable to pay its interests which has led to worries about a nearing bankruptcy.

This scenario would presumably have a huge negative influence on the Chinese Economy and possibly also the international economy. The lingering threat of bankruptcy has also affected the financial markets all over Scandinavia.

In Denmark, the leading Danish stock index, C25, fell by 1,43 percent on Monday. Meanwhile, in Sweden, their OMXS-index fell by 2,8 percent which is the biggest drop since May.

“The nervousness comes from previous times when we have underestimated the effects that can follow after a major bankruptcy,” The Chief Analyst at Danish Sydbank, Jacob Pedersen says, referring to the bankruptcy of the Lehman Brothers investment bank in 2008 and the global financial crisis that ensued.

In Norway, the Norwegian Oil Fond – also known as the Government Pension Fond Global – has also been affected by the news about Evergrande. The Oil Fond is set up to secure the Norwegian oil wealth for future as well as current generations by investing. One of its investments is in Evergrande and by the new year, it owned 0,21 percent of the Chinese company. This share had an estimated value of NOK 462,5 million, according to Bank Investment Management (NBIM) which manages the fund.

In Finland, the news from China has had an impact in more than one respect. The Helsinki stock index fell by two percent on Monday along with the other Scandinavian stock exchanges.

Different Finnish companies have also been caught in a pickle by the developments in China.

The engineering company KONE – which produces elevators along with other things – does a lot of business with the real estate building industry. Last year 30 percent of its net turnover came from the Chinese market. KONE’s stock fell by 3,4 percent on Monday and hit the lowest level in more than a year.

“The long-term drop on the Chinese real estate building marked can have a negative influence on KONE’s growth and rentability,” the company stated in their half-yearly report in July.

The Finnish airline company Finnair also suffered from a 3,5 percent fall on their stock on Monday. This was presumably caused by the fact that Finnair’s future strategy was focused on the growing flight traffic between Asia and Europe. If the Chinese economy should suffer from an Evergrande bankruptcy it could have an impact on this strategy.

The expert opinion.  

However ominous these events might seem, economic analysts from both Norway and Denmark are more optimistic about the prospects of Evergrande’s future.

“I think that the Chinese authorities will try to avoid a “Lehman scenario” and therefore secure a restructuring of the debt. The Chinese won’t let their big banks go bankrupt,” Chief Credit Analyst in Norwegian Sparebank 1, Pål Ringholm says.

About Lasse Sandholdt

ScandAsia Journalist • Scandinavian Publishing Co., Ltd. • Bangkok, Thailand

View all posts by Lasse Sandholdt

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