Evergrande defaults for first time

Fitch Ratings label could trigger more problems for Chinese developer

Evergrande founder Hui Ka Yan (Getty, iStock)
Evergrande founder Hui Ka Yan (Getty, iStock)

A moment six months in the making finally came to pass as Evergrande was labeled in “restricted default” following two missed coupon payments on Monday.

Fitch Ratings cut the Chinese developer’s rating on Thursday, Bloomberg reported. The company didn’t confirm the missed payments with the credit rating firm, but bondholders reported they didn’t receive the money earlier this week.

Evergrande could face cross defaults on its $19.2 billion debt following the rating cut, according to Bloomberg. The company first reported more than $300 billion in liabilities in June, triggering a close watch of how the Shenzhen-based firm would navigate the crisis and how the Chinese government would respond.

So far, Chinese officials haven’t shown any willingness to bail Evergrande out. Instead, policymakers have appointed officials to oversee the restructuring of the developer in a more hands-off approach, Bloomberg noted.

Outside of direct intervention, Chinese officials have taken steps to limit the impact of Evergrande’s seemingly inevitable default. Regulators last month eased some restrictions on bond sales by real estate firms and developers in hopes of limiting credit to overleveraged borrowers without cutting loans off entirely.

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As a result of the policy interventions, deleterious effects of Evergrande’s default in the Chinese economy were limited early Thursday, according to Bloomberg.

It’s not clear what’s next for Evergrande and its restructuring. The developer said last week it would “actively engage” with offshore creditors for a restructuring plan. A number of major investment firms are waiting in the wings for repayment, including Blackrock and Allianz. Past reporting suggests a combined $7.4 billion of onshore and offshore bonds will come due in 2022.

Evergrande’s problems have previously shown an ability to roil developers overseas and its default will bear watching on global markets. Some of China’s most active developers in the United States have been flagged as risks in the past, including Oceanwide Holdings, China Vanke and Greenland.

Evergrande isn’t alone in the default gutter. Fitch Ratings also labeled Kaisa in default after that developer failed to make a repayment on a $400 million bond. According to Bloomberg, the two developers comprise nearly 15 percent of the outstanding dollar bonds from Chinese developers.

[Bloomberg] — Holden Walter-Warner