Sprinter's speed for Evergrande's endgameEditorial | Mary Ma 23 Sep 2021
What is going to happen to China Evergrande? That's the dominant question in the markets right now.
Evergrande chairman Xu Jiayin had previously warned about liquidity problems - and survived each crisis.
So it was generally ignored as just another case of crying wolf when he started warning about an acute liquidity shortage this time.
Three probable scenarios are ahead of Evergrande, which was once China's largest property developer.
In the first scenario - which would be the best outcome as far as Xu and investors are concerned - history will repeat itself to prove he is again crying wolf. Particularly as Evergrande grew bigger each time it emerged from a debt crisis.
The group, over the years, hived off its property management business and also expanded to make electric vehicles - even though no car has yet been produced.
The key to whether or not the billionaire survives his most serious crisis since founding Evergrande in 1997 is firmly held by Beijing.
In past cases, investors believed the central government would save Evergrande because it was the country's largest real estate home provider and would be too big to be allowed to fall. Due to this consensus, Xu survived those crises.
But the lenders had confidence in the central government, not Xu. If history repeats itself, this will be the best-case scenario for Xu, Evergrande and investors.
But the chances of this happening are fading quickly.
Since February, the share price of Evergrande has tumbled more than 85 percent and it is increasingly unlikely that Beijing will commit to bailing out the world's most indebted company as its policy priority is to reduce market leverage to deflate economic bubbles.
The next probable scenario is that Beijing is waiting for the right moment to act. When the moment comes, it may mobilize state enterprises to take over the group's various business units for low prices. Lenders should not expect to recover 100 percent of their money.
If that moment arises, negotiations will center on how deep the haircut will be.
If creditors are owed more than a trillion yuan, they may get a few hundred billion back. Suppliers down the production chain will recover part of their losses too.
Based on precedents, the takeover by the state will be executed orderly.
Evergrande's debt is an unsettling crisis, but it is also an opportunity for the state to nationalize the group. When the moment arrives for the central government to make a commitment, Evergrande's bonds will become worthy again.
The third - and probably least likely - scenario is that the central government does nothing to prevent the company from going bust and disintegrating in a disorderly manner.
This would also be the worst possible outcome, the downside of which would be a broad impact on consumers and suppliers.
If you were a policymaker, would you opt for the second scenario?
There's no question that Beijing is using the Evergrande case to send a strong signal to other private enterprises.