Long considered by many investors as too big to fail, Evergrande has now become the largest casualty of Chinese President Xi Jinping’s campaign to tame the country’s overindebted conglomerates and overheated property market. Before this week, Chinese borrowers had defaulted on US$10.2 billion of offshore bonds in 2021, with real estate firms making up 36% of the total, according to data compiled by Bloomberg.
While Evergrande bondholders face deep haircuts in a restructuring that could take months or even years to resolve, there were few signs of financial contagion on Thursday. That’s partly because investors had been anticipating a default for months, but also thanks to a flurry of activity by China’s government to cushion the blow.
China Evergrande Group has officially been labeled a defaulter for the first time, the latest milestone in months-long financial drama that’s likely to culminate in a massive restructuring of the world’s most indebted developer.
Fitch Ratings cut Evergrande to “restricted default” over its failure to make two coupon payments by the end of a grace period on Monday, a move that may trigger cross defaults on the developer’s US$19.2 billion of dollar debt.
The downgrade came just minutes after Fitch applied the same default label to Kaisa Group Holdings Ltd., which failed to repay a US$400 million dollar bond that matured Tuesday. Together, the two companies account for about 15% of outstanding dollar bonds sold by Chinese developers.
