Evergrande, with a massive debt of about $ 300 billion, has had trouble making interest payments and home deliveries for several months.
The debt rating agency Fitch said today that it considers that the indebted Chinese real estate developers Evergrande and Kaisa have entered a situation of suspension of payments after this week both companies did not pay the amounts they owed to their offshore bondholders.
Fitch lowered the note of the two companies to “limited default” (RD), the penultimate in its scale, granted to debt issuers that have defaulted on their obligations but have not yet ceased operating or entered into bankruptcy or liquidation processes.
After weeks avoiding on the horn the defaults of its ‘offshore’ bonds, Evergrande faced the end of a 30-day extension on Monday to face the payment of about $ 82.5 million in interest of two such batches of debt, one maturing in November 2022 and the other a year later.
Although the company still does not comment on the matter, it already warned on Friday night that it had received a lawsuit to pay about 260 million dollars of a guarantee at a time when “there is no guarantee” that it has sufficient funds to meeting its financial obligations, something that some media interpreted as a “cryptic” announcement that it was finally going to default on its debts.
In fact, Fitch assured today that it has tried to contact Evergrande to confirm if it has made those payments but that it has not received a response, so it decided to “assume” that the promoter had defaulted on its obligations.
China’s richest man became the ‘king of debt’
The downgrade also affects two of its subsidiaries, one of which acted as guarantor on the bonds that, for Fitch, have marked the first official default on Evergrande’s debt abroad.
In another statement also published today, Fitch explains that Kaisa did not pay the 400 million dollars of an ‘offshore’ bond that expired on Tuesday and that the company – which froze the price of its securities on the Hong Kong Stock Exchange yesterday – tried without prolong success.
The rating agency also tried to confirm with Kaisa if she had finally made the aforementioned payment, obtaining the same result as with Evergrande.
Insolvency risks
Non-payment could generate for the two companies a situation of ‘cross-default’ (“crossed insolvency”), in which the default with a single creditor is enough for others to claim the repayment of their loans.
As recently reported by the economic news portal Caixin, Evergrande has an offshore debt of more than 19,000 million dollars.
In the case of Kaisa, the corporate accounts place the amount at 11,275 million dollars, which, according to some media, makes it the second largest issuer of ‘offshore’ debt among Chinese developers.
Kaisa was due to pay $ 400 million (353 million euros) in interest on Tuesday.
The group had already warned last week that it was running the risk of default.
Kaisa, which has 17,000 employees, was the first Chinese real estate group to default on dollar bonds in 2015.
The rating agency also speaks of the “uncertainty” about Evergrande’s announced plans to negotiate with its creditors the restructuring of the ‘offshore’ debt, since “for now there is hardly any information available” in this regard beyond the creation of a “Risk control group”. (I)
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