Abstract: Rahman worked for an investment bank in India. The debt crisis of Evergrande in the year 2021, the second-largest real estate company in China, had disrupted investors worldwide, creating panic among Rahman's clients as well. Evergrande owed $300 billion as debt, and the falling real estate market in China, post-pandemic, had hit the cash flow of Evergrande, pushing the company to the verge of default on its bond payments and other financial obligations. Investors started to fear the Evergrande crisis would affect their investments and disrupt the pandemic-hit world economy. The similar case of Lehman Brothers in the US housing mortgage market during 2009 and later the economic collapse were the profound reasons for fear of Rahman's clients. Seeking clarity on the nature and potential impacts of the Evergrande crisis, Rahman's clients requested his input. Rahman decided to explore the accurate picture of Evergrande and intends to clarify the same to his clients. Rahman wants to analyze the solvency and liquidity position of Evergrande and estimate the Piotroski F score to find the health of its financial position. Further, Rahman accesses the possibility of the crisis becoming systemic, as in Lehman Brothers in 2009.
Learning Objectives: The case places students in Rahman's position. It helps explore various aspects of the solvency issues of a systemically important financial institution with possible consequences to the world economy and financial markets. After reading the case and completing the discussion questions, the students will be able to.,
• Define the interrelation between debt, Solvency, macroeconomic problems, and systemic defaults.
• Estimate the solvency position of Evergrande using ratios and the Piotroski F score model.
• Examine the possibility of a financial institution turning into a systemic crisis during macroeconomic changes.
• Evaluate the impact of a financial market and economy on other related markets and economies.