Evergrande crisis seems like China’s Lehman moment: Uday Kotak

The risk of China’s biggest real estate developers defaulting on billions of dollars of debt, has spooked markets globally and raised concerns about a broader economic fallout.

Also, the given crisis is an unwelcome reminder of the infamous “Lehman Moment”. Lehman Brothers filed for bankruptcy on September 15, 2008, involving more than $600 billion in assets. At the time of its collapse, Lehman was the fourth-largest investment bank in the United States.

Likewise, Evergrande, the largest real estate borrower in the world, has an overall liabilities exceeding $300 billion.

Emphasising a swift action by the Chinese government, billionaire banker and CEO of Kotak Mahindra Bank, Uday Kotak took on to Twitter and said, “Evergrande seems like China’s Lehman moment. Reminds us of IL&FS. 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 $.”

On the contrary, Kirtan Shah, Co-Founder – SRE Wealth argued that this is not a Lehman like case. “In 2008, Lehman was involved in trading not very known derivatives with global participants & leveraging (which blew it out of proportion); Evergrande has pure debt against real estate development, a known product. Most of the debt to Evergrande is by Chinese banks & hence spiral effect does not seem to be a popular opinion,” Shah replied to Kotak’s tweet.

“Evergrande is a Fortune Global 500 enterprise & the biggest residential developer in China with yearly sales amounting to $110B. Employees 2 lakh directly & creates 3.8m jobs each year indirectly. The current liability stands at 2% of China’s GDP,” he further explained.