Following this omission, the rating agency Fitch Ratings cut the valuation of the company’s bonds to “restricted default”
China Evergrande, the world’s most indebted real estate developer, defaulted for the first time on a debt in dollars this Thursday.
After the omission, the rating agency Fitch Ratings it cut the valuation of the company’s bonds to “restricted default,” thus drawing attention to the possible default by others of its other foreign currency debts.
The brick giant had the Chinese government and investors since it declared in August that it could not pay its debt, which at that time amounted to some 254,000 million euros and represented a systemic risk for the second largest economy in the world.
Evergrande said in a brief exchange presentation on December 3 that it plans to “actively engage” with offshore creditors in a restructuring plan.
The company assured that it plans to include all its offshore public bonds and private debt obligations in this plan. For now the Chinese government gave no indication of a bailout, although since October the market has actively intervened with millionaire injections to mitigate the possible fall of the giant and avoid the dreaded contagion.
The President of Evergrande, Hui Ka Yan, was summoned by the government of the southern province of Guangdong, where it is based, last week. After the meeting, the authorities affirmed that they will send a working group to urge the construction company to manage risks, as well as to strengthen internal controls and guarantee the operation of the real estate company. The ailing giant said Monday that state representatives have taken the majority of seats on a new risk management committee.
Evergrande’s default comes after an effort by the Government of Xi Jingping for reducing the enormous indebtedness of the Chinese real estate sector with new regulations, which has made the sector’s vulnerability visible. These measures, which took effect in early 2021, have also hit other large developers such as Kaisa and Phantasia, which are in similar situations to Evergrande due to lack of liquidity to honor their interest payments.
The Chinese giant shook the market
If you do not pay, the company would incur a formal default
China’s real estate troubles shook world markets in September and October. There was a brief lull in mid-October after Beijing tried to assure markets that the crisis would not spiral out of control.
However, concern has resurfaced, with the US Federal Reserve warning Tuesday that China’s troubled real estate sector could pose global risks.
More and more promoters see their credit rating by the worsening of your financial profile.
Concern over the possible fallout from Evergrande has also rocked the Chinese real estate sector in recent days, hitting bonds of real estate companies on fears that the crisis will spread to other markets and sectors.
Evergrande’s troubles have been building up for months and its dwindling resources in the face of its enormous liabilities have erased 80% of its value.
Founded in Guangzhou in 1996, the developer epitomized an era of freedom of action to borrow and build. However, that business model has been complicated by hundreds of new rules designed to curb the building frenzy and promote affordable housing.
Evergrande is the world’s most indebted real estate firm
Relief in October
In mid-October, the firm avoided a default with a last-minute payment of interest on a bond, thus gaining additional weeks to deal with a debt crisis that threatens the world’s second-largest economy.
Back then, the second largest Chinese real estate developer remitted $ 83.5 million to a trust account at Citibank, which allowed him to pay the interest on a dollar bond before the end of the grace period on October 23.
This brought relief to investors and regulators concerned about the repercussions on world markets, and will add to the guarantees offered by the Chinese authorities, who have said that creditors will be protected.
It was not clear how the cash-strapped Evergrande was able to raise funds to pay the bondholders or if any had already received the money on it. Evergrande must face about $ 338 million in overseas coupon payments in November and December.
“They seem to be avoiding short-term default and It is a relief that they have managed to find liquidity“said a Hong Kong-based debt restructuring attorney representing some bondholders.
“This payment could be a way to get some kind of buy-in from stakeholders before the hard work required in restructuring,” added the lawyer, who asked to remain anonymous.
Evergrande did not pay coupons totaling nearly $ 280 million on its dollar bonds on September 23, on September 29 and October 11, initiating grace periods of 30 days for each.
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