A catastrophic failure could have repercussions on the entire industry, which contributes around a quarter of China’s gross domestic product.
(Photo: AP)
Beijing The Chinese real estate developers Evergrande and Kaisa are on the verge of default. The rating agency Fitch set its rating for both companies to “Restricted Default” on Thursday morning. This rating is only one level above payment default (“default”).
Evergrande owed an interest payment. This was due for the first time in November – but the real estate giant was also unable to meet a grace period of 6 December. The rating agency Standard & Poor’s announced on Tuesday that it considers a payment default at Evergrande to be inevitable.
A $ 400 million bond was also due at Kaisa. It was also not paid. The Hong Kong stock exchange had already suspended trading in Kaisa shares on Wednesday after the first indications of a default.
The Evergrande competitor has already initiated a debt restructuring. Management will shortly enter into a confidentiality agreement with investment bank Lazard advising a group of bondholders. This laid the foundation for negotiations on refinancing and loan deferrals, it said.
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A catastrophic corporate failure could have far-reaching consequences for the entire Chinese real estate sector. According to the company, Evergrande has outstanding foreign bonds worth $ 19 billion, and Kaisa has $ 12 billion.
China’s central bank chief Yi Gang has meanwhile signaled that the government in Beijing does not want to come to the aid of the group with rescue measures. According to the central bank, the governor said on Thursday that Evergrande’s risks were a “market operation” that would be appropriately handled “in accordance with the principles of the market and the rule of law.”
Investors fear a domino effect that could also affect other Chinese real estate developers. According to experts, the real estate market accounts for around a quarter to a third of the gross domestic product in China.
More: China and the Evergrande shock: “The time to make money with real estate is over”