A Breakdown of the Evergrande Debt Crisis

Evergrande, which was once an illustrious Fortune Global 500 company, is now the world’s most-indebted real estate developer. 

The company has been on all over news headlines in recent weeks for its massive $304 billion debt. That is HUGE considering the whole state of Russia’s debt stood at $257 billion in 2021. 

You must be wondering, how did they get into so much debt?

This story is fascinating and carries a lot of learning about finance and business so I wanted to dig deeper into the situation with all of you curious folks. Here’s a breakdown on the business, background and its very public fall from grace. 

The background

Evergrande, formerly known as the Hengda Group, was founded by businessman Hui Ka Yan in 1996 in Guangzhou, Southern China. At its core, it’s a homebuilder business – scaling up over time from a small local player into a national behemoth. 

Evergrande Real Estate currently owns over 1,300 projects in 280+ cities across China. However, the broader Evergrande Group encompasses far more than just real estate development. Its businesses range from wealth management (Evergrande Wealth), internet and media production (HengTen Networks), electric cars manufacturing (Evergrande New Energy Auto), mineral water and food (Evergrande Spring). It even owns one of the country’s biggest football teams – Guangzhou FC AND a theme park (Evergrande Fairyland). 

The Business Challenge

We all know that building a new development project takes many months (even years) and requires a lot of cash outflows along the way. Revenue typically doesn't come in until the project is completed. 

So how did Evergrande finance its impressive growth? Debt. The property developer has financed its various pursuits by borrowing money to the tune of $304bn. It has not only borrowed from banks, trust firms and bondholders, but also from its employees and wider society.  

"Strayed far from its core business, which is part of how it got into this mess," said Mattie Bekink, China director of the Economist Intelligence Unit.

Too ambitious for its own good, Evergrande sold many homes before they were even completed. By the end of 2020, the property developer had more than 700 unfinished projects and 1.6 million people waiting to move into their new homes. 

Its debts grew alongside its size and assets. Evergrande has b