Dividends and China Evergrande lenders appoint receiver to seize Hong Kong Headquarters, sources say

Debt is a wonderful dual sword – debt is needed to allow growth, but debt has to be paid back. Every company and individual needs to pay attention to debt, but for companies sometimes the government gives the impression, the encouragement to grow even faster and the government will be pay the debt. The scenario has happened in many cases and the latest one is Evergrande Group.

In the 1980’s up until the mid 2000’s, China was leading the world in growth rates and not surprisingly the property companies were putting up apartments and houses faster than people could occupy them. In China there are cities for over 100,000 people but less than 5,000 live in it or Ghost Cities. Someone authorized and gave the distinct impression it was important to build them. One of the big property companies was Evergrande Group.

According to an article in Reuters, Evergrande Group has over $300 billion in liabilities. The company has been trying to sell its headquarters building in Hong Kong for $1.7 billion to raise funds. The Hong Kong tower is pledged for a loan by lenders led by China Citic Bank a subsidiary of the Chinese state owned bank China Citic Bank Corp Ltd. The bank is appointing a receiver in bankruptcy to seize the 26 story office tower.

Linking to dividend paying stocks, when debt is very inexpensive it is good companies are using debt to grow the business, but interest rates go up and debt needs to be paid first. For your investments, watch the debt levels.

There are more questions than answers, till the next time – to raising questions.

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