The end of last week saw global markets tumble as China’s financial system was rocked. When the news broke that real estate conglomerate Evergrande (OTCMKTS:EGRNF) was facing the fallout of a serious lack of liquidly, it sent shockwaves through Chinese markets that quickly spread to the U.S. and Europe. Reports this morning, indicating that the storm might soon pass as external forces step in to quell the crisis, are welcome news to anyone holding EGRNF stock.
What’s Happening with Evergrande
According to Bloomberg, global markets are about to get some relief as China’s central bank is stepping in to boost liquidity. This type of short-term cash injection can serve to stabilize the economy’s risk assets most prone to the turbulence caused by Evergrande. In this case, it also helps lend credibility to a statement issued by the company stating that it “negotiated a resolution” to settle a $35.9 million coupon payment with an offshore bond holder to whom it is indebted.
This comes directly before Evergrande will face another coupon payment, this time on its U.S. Dollar Bonds, for $83.5 million. While the company has, as of yet, issued no statement on whether it will pay it or when any payment can be expected, its ability to resolve one debt gives investors cause for an optimistic outlook.
For Evergrande to default on such significant debts would mean further consequences, not only for EGRNF stock investors, but for financial markets spanning far beyond China.
What It Means for EGRNF Stock
Despite constant speculation and skepticism, it’s been mostly good news for Evergrande shareholders today. As of this writing, EGRNF stock has risen by more than 40% and is currently up more than 26% for the past five days.
While some comparisons have been drawn between Evergrande and American investment bank Lehman Brothers, other experts have indicated that this should not be considered a systematic crisis and that if Evergrande is able to inject some cashflow back into the development of its physical assets, it will be able to start repaying its considerable debts and will ultimately be able to move forward, thereby stabilizing EGRNF stock and China’s markets.
The storm may not be over yet. Indeed, it is more important than ever that we watch and wait, ensuring that Evergrande receives the cash injections that it needs and that it does with them what is necessary to continue making repayments.
Things are quiet for now, but those with EGRNF stock should remember how long it takes for a storm to pass. It is in the best interest of everyone for Evergrande to continue operations and resume progress so that its debts can be paid, but the aftermath of a crisis needs to be handled correctly.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.