2015-03-21

Evergrande's Potemkin Loans

Mingtiandi has the inside scoop on Evergrande's recent credit line: WHY THE NEW YORK TIMES IS WRONG ABOUT EVERGRANDE’S $16B “LIFELINE”
The industry insider clarified that the key point to understand is the meaning of a “line of credit” in this context. At this point none of the banks have loaned any money to Evergrande, or even agreed to loan the developer any cash.

“What the banks have done, is agreed to consider loaning cash to Evergrande, or to one of its projects, if they come up with a worthwhile proposal that appears creditworthy,” the executive pointed out (after making it clear that they had no direct knowledge of this particular case).

...The bank has no particular reason to sign a partnership agreement or offer a line of credit to Evergrande if there is no actual transaction taking place. However, if a major customer that happens to be one of China’s ten biggest real estate developers asks for a meaningless agreement as a favour, the bank also doesn’t have a lot of reasons to not go along with the public relations maneuver.
So it turns out Chinese Banks Did Not Bailout Evergrande.

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