For the first time, the real estate giant of China, Evergrande Group, has officially been declared a defaulter for its failure to fulfill dollars-based obligations.
Fitch Ratings today reduced the Evergrande’s rating to restricted default over its failure to meet two coupon payments after a grace period expired on Monday. The credit assessor Fitch Ratings said the developer didn’t respond to request for confirmation on the payment, and is assuming it wasn’t made. The downgrade may trigger cross defaults on Evergrande’s $19.2 billion of dollar debt.
The development marks the beginning of the end for the sprawling real estate empire which was started 25 years ago by founder Hui Ka Yan, setting off a lengthy battle over who gets paid from what remains. It also poses a challenge to the Chinese government’s efforts to prevent a debt crisis in the property sector from sparking broader contagion.
Authorities have scored some successes, with markets taking the most recent developer debt stumbles in their stride after a reserve-ratio cut announced by the central bank on Monday.
Evergrande, which disclosed more than $300 billion of total liabilities as of June, said in a brief exchange filing on Dec. 3 that it plans to “actively engage” with offshore creditors on a restructuring plan.
The company is planning to include all its offshore public bonds and private debt obligations in the restructuring, people familiar with the matter said separately.
‘Reckless expansion’
“The downgrade may not have an overt or immediate impact on the Chinese process, but may subtly increase pressure on the company (and regulators) to quickly reveal initial restructuring proposals,” said Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong.
Fitch also downgraded Kaisa Group Holdings Ltd. to restricted default, citing its failure to repay a $400 million dollar bond that matured Tuesday. The ratings cut may also trigger cross defaults on the developer’s $11.2 billion of outstanding dollar debt. The company had become a symbol of the boom years in Chinese credit markets after emerging from a high-profile default in 2015.
