Evergrande defaults, according to Fitch agency

Two Chinese real estate developers, including the giant Evergrande, defaulted on loan payments totaling $ 1.6 billion, the rating agency reported Thursday Fitch, the latest turn of a crisis of the sector in the second economy of the world.

The real estate and construction accounts for more than a quarter of the PIB de China and they are the engine of activities such as steel and furniture.

To reduce the indebtedness of this sector, Beijing last year tightened the conditions of access to credit for the real estate developers.

Evergrande, long the number one in the industry, is illiquid and its financial situation has worsened in recent months.

Its precarious situation is also explained by the multiplication of its investments, sometimes in very different sectors such as tourism, leisure, digital technologies and the electric cars.

Thus, with a debt of some 300,000 million dollars (about 260,000 million euros), Evergrande has been struggling for several months to face the interest payments and the deliveries of apartments.

On November 6, the group was due to pay $ 82.5 million (€ 73.1 million) in interest. But the one-month grace period ended on Tuesday.

This context in turn affected the confidence of potential buyers, which lowered the price of the property in many Chinese cities.

“Judicial actions”

Since then, “neither Evergrande nor its creditors have made any announcements about a refund,” the agency of Fitch credit rating, assuming that the group “has not paid.”

“This formalizes a default,” said Chen Long, an analyst at consulting firm Plenum. “Evergrande defaulted on two loans on Monday,” he explains.

From now on, “I believe that all the creditors are going to carry out legal actions”, considers Chen Long, for whom the debt holders are going to seek to obtain assets from the real estate developer.

Risk management

In September, Evergrande admitted for the first time that it would not be able to pay off all of its loans, but had so far managed to repay the money to its creditors, even using grace periods.

Everything changed last week, when the group again warned about its financial problems.

Although the government has not ruled on the future of the group, the head of the central bank, Yi Gang, dropped that Evergrande would have to face the laws of the market.

Yi Gang affirmed that “the rights and interests of creditors and shareholders will be respected,” according to the Chinese press.

The Chinese state created a committee within Evergrande to “reduce and eliminate future risks.”

Some analysts see in this measure the beginning of the restructuring of the company.

A new “Lehman” case?

With 200,000 direct workers and 3.8 million indirect workers in China, Evergrande’s bankruptcy would have catastrophic economic and social consequences.

However, many experts consider a new “Lehman Brothers” case unlikely as the markets anticipated the group’s difficulties.

The 2008 bankruptcy of the US bank sparked the worst global economic crisis since 1929.

Another Chinese developer, Kaisa, one of the country’s most indebted, also defaulted on a payment this week, according to Fitch.

Kaisa was due to pay $ 400 million (353 million euros) in interest on Tuesday.

The group had already warned last week that it was running the risk of default.

Kaisa, which has 17,000 employees, was the first Chinese real estate group to default on dollar bonds in 2015.


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