Sarah Connor (Terminator 2): “The Survivors of the nuclear holocaust called the war Judgement Day. They lived only to face a new nightmare: the way against the machines.”
Evergrande Default Is “Inevitable” – S&P Warns As Chinese Developer Misses Dollar Bond Payments
Having sold its Gulfstream Jets, dumped assets (at fire-sale prices), and seen its CEO forced to pledge his Hong Kong mansion as collateral for a loan, it appears – as we warned yesterday – that time is up for Evergrande bond (and stock) holders.
Specifically, offshore (dollar) bondholders did note receive coupon payments by the end of a 30-day grace period, pushing the cash-strapped property developer closer to formal default.
And after this missed payment, there are billions more coming due… and soon ($300 billion in total liabilities)
S&P says it continues to believe that a default by the Chinese developer looks inevitable:
Evergrande’s “liquidity remains extremely weak,” according to the ratings firm.
Fitch piled on with a downgrade to C from CCC-, saying in a statement:
“Default or default-like process has begun, based on the company’s announcement that it has not made payments or reached an agreement with creditors regarding its offshore financing, after it received notice from creditors demanding payment on financings with principal amount of around $651 million following recent rating actions by rating agencies.”
Bond prices are already priced for that ‘inevitable’…
As are Evergrande’s stock price…
Notably, as WSJ reports, the debt blowup is also a landmark in China’s changing attitude to corporate defaults, which were once rare but are growing more common, both onshore and offshore. Recent failures include the chip maker Tsinghua Unigroup and the once-hyper-acquisitive conglomerate HNA Group, which is now undergoing a court-led restructuring in China.
The shifting stance on defaults is partly a recognition that after a huge run-up in the country’s corporate debt pile in recent years, Beijing can’t afford too many bailouts.
A barrage of statements from Chinese regulators, several of which landed just minutes after Evergrande’s announcement on Friday, suggested authorities are striving to contain the fallout on homeowners, the financial system and the broader economy rather than orchestrate a bailout.
And, as a reminder, another developer – Kaisa – is on course for default this week unless it can reach a last-minute agreement with creditors to delay payment. The firm has $11.6 billion in outstanding dollar debt, making it the nation’s third-largest issuer of such notes among property firms.
As Reuters reports, failure by Evergrande to make $82.5 million in interest payments due last month would trigger cross-default on its roughly $19 billion of international bonds and put the developer at risk of becoming China’s biggest defaulter – a possibility looming over the world’s second-largest economy for months.
Non-payment by Kaisa would push the 6.5% bond of Kaisa, China’s largest holder of offshore debt among developers after Evergrande, into technical default, triggering cross defaults on its offshore bonds totalling nearly $12 billion.