Evergrande, China’s deeply-indebted property developer, defaults on its dollar debt for the first time

December 9, 2021, 9:04 AM UTC

China Evergrande Group, the Chinese developer whose liquidity crisis has shaken the nation’s credit markets, has defaulted for the first time on dollar debt. 

The property giant’s long-term foreign-currency issuer default rating was cut to restricted default at Fitch Ratings, which cited missed dollar bond interest payments whose grace period expired Dec. 6.

The development marks the beginning of the end for the sprawling real estate empire started 25 years ago by founder Hui Ka Yan, setting off a lengthy battle over who gets paid from what remains. It also poses the biggest challenge yet 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. 

Bondholders of $19.2 billion in Evergrande dollar notes face deep haircuts as the company overhauls its mammoth balance sheet without a government bailout—a process that promises to be long, contentious and potentially risky for Asia’s largest economy. 

Some of Evergrande’s dollar notes are trading in deeply distressed territory at about 20 cents on the dollar. The key for bondholders is whether the company can speed up home sales and unload assets.

Officials are taking a hands-on role at Evergrande. Chairman Hui was summoned by the government of the southern province of Guangdong where it’s based last week after the company said it plans to work with creditors on a restructuring plan.

Authorities will send a working group to urge the builder to manage risks, as well as strengthen internal controls and ensure normal operations. The company on Monday said state representatives have taken the majority of seats on a new risk management committee. 

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