“There has been no announcement from the company or the trustee regarding the coupon payments due November 6… after the grace periods lapsed,” Fitch said Thursday. “In addition, the company did not respond to our request for confirmation on the coupon payments. We are therefore assuming they were not paid.”
And just like that, Evergrande was declared in default.
It felt somehow anticlimactic. In September, markets recoiled at the very mention of it, fearing a disorderly wind down and a fraught restructuring complicated by ambiguity about the capital structure and the unknowable preferences of Chinese authorities. Retail investors needed to be paid and unfinished projects needed tending. After all, the only thing the Party has less tolerance for than COVID is social unrest. And then there was the prospect of contagion.
To be sure, there was contagion. Beijing’s property curbs exacerbated the situation materially. And yet, Evergrande bought time — despite having no money, as I was fond of putting it.
At the apparent direction of the Party, Hui Ka Yan dipped into his personal wealth to prop up the company. Late last month, he slashed his stake in Evergrande for the first time since it went public more than a decade ago. Over seven months, he spent $1 billion shoring up the world’s most indebted developer which, as a reminder, has liabilities totaling some $300 billion (figure below).
On Thursday, FT suggested Hui is resisting pressure to raise more cash through the haphazard disposal of the firm’s best assets, including land and redevelopment projects. He wants a good price, sources said.
Hui’s net worth plunged by $17 billion, or 73%, in 2021.
Fitch’s downgrade could trigger cross-defaults on nearly $20 billion in dollar debt. At issue were coupon payments on two Tianji bonds (red in the figure, below). The grace period lapsed earlier this week.
Tianji is a restricted subsidiary. Non-payment is an event of default. “As a result, Tianji and Evergrande’s other US dollar notes will become due immediately and payable if the bond trustee or holders of at least 25% in aggregate principal amount of the offshore notes declare so,” Fitch said Thursday.
PBoC governor Yi Gang reiterated Beijing’s position that, all back-channeling aside, the market will be permitted to play a role in the restructuring. “The rights and interests of creditors and shareholders will be fully respected in accordance to their legal seniority,” Yi said, during taped remarks for a seminar. Earlier this week, reports indicated Evergrande does intend to include all offshore bonds and private obligations in any restructuring.
“The issue for Evergrande’s global bondholders won’t be focused on seniority — nearly all of the firm’s offshore bonds hold the same status,” Bloomberg’s Rebecca Choong Wilkins said, in a short blog post. “Instead, all eyes are on whether notes issued by different units of Evergrande will be considered pari pasu when it comes to any potential haircuts.”
Also on Thursday, Fitch declared Kaisa in default citing the missed payment on a $400 million senior note which matured earlier this week. “There is no grace period,” Fitch remarked, flatly. The non-payment could trigger cross-defaults on more than $11 billion of the company’s other US dollar notes.
In October, Kaisa called off investor meetings to the chagrin of the company’s debt, which tumbled. Ratings agencies followed up with downgrades.
For what it’s worth, this isn’t Kaisa’s first rodeo. The company was, in fact, the first Chinese developer to default on dollar bonds.
According to REDD, Kaisa told investors it intends to finalize a preliminary restructuring plan next week. A source said Kaisa will consider all “feasible options” that maximize value for the company.
Now let’s see how much US investors have of that 300B and what impact these defaults have in domestic markets.
China bought time to foam the runway. Lets see how bad the plane crash is…..