After failing to pay its creditors on December 6th, the Chinese property developer was classified as a "restricted default" (RD) for the first time on December 9th by the rating agency Fitch. Evergrande is saddled with some $300 billion in debt.

The downgrades reflect the non-payment of coupons due 6 November 2021 for Tianji's USD645 million 13% bonds and USD590 million 13.75% bonds after the grace period lapsed on 6 December. The non-payment is consistent with an 'RD' rating, signifying the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a material financial obligation.

Failure to make coupon payments within the grace period is consistent with Fitch's definition of an “RD” rating, as the company has experienced an uncured payment default on a material financial obligation but has not yet entered into bankruptcy filings, administration, receivership, liquidation, or other formal winding-up procedures, and has not otherwise ceased operating.

Real estate and construction account for more than a quarter of China's GDP

Real estate and construction account for more than a quarter of China's GDP and serve as the locomotive for many other sectors, such as steel and furniture. But to reduce the sector's indebtedness, Beijing last year tightened the conditions for access to credit for property developers.

Since then, Evergrande, long the sector's leader, has run out of cash and its financial situation has worsened considerably in recent months.

The group's woes have led to a crisis of confidence among potential buyers. As a result, property sales and prices are falling in many Chinese cities.

While Beijing has yet to announce whether it will rescue Evergrande, central bank governor Yi Gang suggested that the fate of the group would be left to the market. "The rights and interests of creditors and shareholders will be fully respected according to their legal seniority," he said, according to Chinese media reports.

No “Lehman Brothers” scenario

Evergrande claims to employ 200,000 people and indirectly affect 3.8 million jobs in China.

Any bankruptcy would have catastrophic consequences for the Chinese economy but also on the social level, with the risk of unrest. Most analysts, however, consider a "Lehman Brothers" scenario unlikely because the markets have anticipated these difficulties, explains the media Challenges. The 2008 failure of the US investment bank plunged the world into its worst financial crisis since 1929.

Publié le 10 décembre 2021