China’s Evergrande officially defaults on dollar debt

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Fitch Ratings downgraded the asset giant’s long-term forex issuer default rating to restricted default.

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

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The asset giant’s long-term foreign-currency issuer default rating was cut at Fitch Ratings over a restricted default, citing missed dollar bond interest payments, whose grace period expired on December 6.

The development marks the beginning of the end of the sprawling real estate empire started by founder Hui Ka Yan 25 years ago, setting off a protracted battle over who gets paid for with what’s left. It is the biggest challenge yet to the Chinese government’s efforts to avoid a widespread transition to the debt crisis in the property sector. After the reserve-ratio cut announced by the central bank on Monday, officials have made some breakthroughs, with markets taking the most recent developer loans in their stride.

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Evergrande, which disclosed more than $300 billion of total liabilities as of June, said in a brief exchange filing on December 3 that it plans to “actively engage” with offshore creditors on a restructuring plan. The company plans to include all of its offshore public bond and private debt obligations in the restructuring, people familiar with the matter said separately.

dark haircuts

Bondholders worth $19.2 billion in Evergrande dollar notes face deep haircuts as the company overhauls its massive balance sheet without a government bailout – a process that has been long, controversial and potentially crippling for Asia’s largest economy. promises to be extremely risky.

Some of the Evergrande dollar notes are trading in deep troubled territory at around 20 cents on the dollar. The key for bondholders is whether the company can accelerate home sales and unload assets.

Officials are playing a practical role at Evergrande. Chairman Hui was summoned by the government of the southern province of Guangdong, where last week the company said it plans to work with creditors on a restructuring plan.

The authorities will send a working group which will urge the builder to manage risks as well as strengthen internal controls and ensure normal operation. The company said on Monday that state representatives occupied the majority of seats on the new risk management committee.

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