Evergrande Defaults On Debt?

by The Chicago Times Business Staff

December 9, 2021

HONG KONG — According to Fitch Ratings, Evergrande, the troubled Chinese property developer, has defaulted on its loans.

The corporation and its subsidiaries were downgraded to “limited default” by the credit ratings agency on Thursday, indicating that the company has failed to meet its financial obligations.

The downgrade, according to Fitch, is due to the company’s inability to pay interest on two dollar-denominated notes that were due earlier this week.  Grace periods expired on Monday, and the payments were due a month ago.

Evergrande made no disclosure regarding the payments, according to Fitch, and did not react to the ratings agency’s inquiries.

Evergrande’s overall liabilities are estimated to be above $300 billion, and analysts have been concerned for months that a failure may spark a wider crisis in China’s housing market, harming homeowners and the financial system as a whole.  Last month, the US Federal Reserve cautioned that problems in Chinese real estate could hurt the global economy.

On Monday, the business stated that it would establish a risk management committee led by Evergrande Chairman and Founder Xu Jiayin to focus on “mitigating and eliminating” future risks.

Fears of a default led Evergrande’s stock tumbling 20% on Monday.  The stock has dropped 87 percent so far this year.

For months, the company had been scrambling to raise cash to repay lenders, and Xu had even sold personal assets to shore up the company’s finances.  It appeared to avoid default on any of its offshore debts in the past by paying past-due interest before the grace periods on those bonds ended.

With $3.5 billion in US-dollar denominated bond repayments due in the coming months, Standard & Poor’s, cautioned earlier this week that “default looks probable for Evergrande.”

“Given its problems in raising new funding, the issuer [Evergrande] does not appear to be making much headway in resuming construction,” S&P Global analysts noted in a note issued Monday.

On Evergrande’s request, the local government in Guangdong province, where the firm is situated, announced last Friday that it would send a working group to the company to oversee risk management, tighten internal controls, and maintain regular operations.

The People’s Bank of China and other key financial regulators have attempted to convince the public that Evergrande’s issues are manageable.  On Monday, the central bank stated that it would inject $188 billion into the economy, ostensibly to combat the real estate downturn.