Evergrande »What to expect after a default?

Evergrande default payment in China!

Evergrande, China’s second-largest real estate developer, narrowly avoided default for months. The company has a debt of more than $ 300 billion that, as it warned the market in September, it believed would be difficult to pay off. (By the way, Evergrande is believed to have an additional $ 150 billion in debt, outside of its official financial books.)

Simply put, the company’s cash flow, severely hampered by the cooling of the Chinese housing market, is not enough to pay the interest of those from whom it has borrowed funds, usually in the form of interest-bearing corporate bonds.

One of those hapless buyers of Evergrande corporate bonds, among others, is a foreign investor. Offshore bondholders are likely to be the lowest priority investors in the Company when receiving interest or reparations payments.

Evergrande is missing!

Perhaps fortuitously, it was Evergrande’s failure to pay interest to this same group of investors that prompted Fitch Ratings to change the company’s status to “restricted default” on December 9. Interestingly, Evergrande is the 12th Chinese real estate company to default on bonds in 2021 and by far the largest to do so.

Now what?

Other rating agencies, such as Moody’s and S&P Global, have not been quick to update their status to China Evergrande. However, S&P Global noted that Evergrande’s default is “inevitable.”

Evergrande itself appears to be ignoring public comments about its breach of duty, and has not closed the business or initiated any official paperwork to deal with its possible bankruptcy.

Evergrande is currently undergoing restructuring as it tries to continue operating as usual. The restructuring includes renegotiating its liabilities and ditching the Company’s non-construction branches at bargain prices, such as its property management business, as well as stakes in a large Chinese bank and (interestingly) a service provider.

Company executives have been under pressure to accelerate its restructuring since the change in its rating on Fitch. According to Bloomberg, Evergrande’s restructuring in China is closely watched, if not fully controlled, by Chinese authorities in Beijing and the company’s home province of Guangdong.

At present, the official line of the Central Bank of China is that the Evergrande crisis in China is being managed according to “the principles of commodification and the rule of law.” If more rating agencies follow Fitch Rating in the coming weeks, Evergrande could fall into something a little more serious than a narrow default and the above price could turn a bit more true, with Chinese authorities paralyzed in their ability to interfere with a collapse.

Mark O ‘Donnell Article » Blackull Markets » Official site

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Disclaimer: The information and opinions in this report are provided for general information only and do not constitute an offer or a solicitation to buy or sell currency or CFD contracts. Although the information contained in this document has been taken from sources considered reliable, the author does not guarantee its accuracy or completeness, and does not assume responsibility for any direct, indirect or consequential damages that may result from the fact that someone trusts such information.

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