Blurb

China Evergrande failed to make interest payments to offshore bondholder, prompting Fitch Ratings to upgrade the Company’s status to “restricted default” on December 9, making China Evergrande the twelfth Chinese real estate firm to default on bonds in 2021, and by far the largest to do so.

China Evergrande, the second-largest real estate developer in China, has been narrowly dodging default for months. The Company has more than US $300 billion in debt that, as it warned the market back in September, it believed would be difficult for it to service. (As an aside, it is believed that China Evergrande could have an additional US $150 billion in debt, off its official financial books).

Put simply, the cash flow of the Company, severely dampened by the cooling Chinese housing market, is not enough for it to service interest payments to those from which it borrowed funds, typically in the form of interest-bearing corporate bonds.

One such unlucky purchaser of China Evergrande corporate bonds, among others, are off-shore investors. Off-shore bondholders will likely be the least prioritised of the Company’s investors when receiving interest payments or reparations.

Evergrande defaults!

Perhaps fortuitously, it was the failure by China Evergrande to make interest payments to this very group of investors that prompted Fitch Ratings to upgrade the Company’s status to “restricted default” on December 9. Interestingly, China Evergrande is the twelfth Chinese real estate firm 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 so quick to upgrade their status of China Evergrande. However, S&P Global has noted that China Evergrande’s default is “inevitable”.

China Evergrande themselves seem to be ignoring public comment on its failure to meet its obligation, nor has it ceased operations or begun any formal paperwork to address its potential bankruptcy.

China Evergrande is currently under restructuring while attempting to continue operations as usual. The restructuring includes renegotiating its liabilities and offloading non-construction arms of the Company at bargain prices such as its property management business, as well as stakes in a major Chinese bank and (strangely enough) a streaming services.

Pressure is being applied to the Company’s leaders to speed up its restructuring since the change in its Fitch rating. According to Bloomberg, the China Evergrande restructure is being heavily monitored, if not outright controlled by Chinese Authorities in Beijing and the Company’s home province of Guangdong.

Right now, the official line from the Central Bank of China is that the China Evergrande crisis is being handled as per the “principles of marketization and rule of law,”. If more rating agencies follow Fitch Rating in the coming weeks, China Evergrande could slip into something a little more serious than restricted default and the above quote may become a little truer, with Chinese authorities being hamstrung in their ability to interfere with a meltdown.

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial adviser if you have any questions or concerns as to how a loss would affect your lifestyle.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD: Inside day Friday opens risk of a lower close on Monday, 0.7050 eyed

AUD/USD: Inside day Friday opens risk of a lower close on Monday, 0.7050 eyed

AUD/USD was the best performer for the G7 last week and Aussie bulls could be trapped up high for the week ahead which holds a number of key data events. The following illustrates a bearish bias for the initial balance of the week, Monday with 0.7050 eyed.

AUD/USD News

EUR/USD faces fragile barricades below 1.0900 ahead of German GDP data

EUR/USD faces fragile barricades below 1.0900 ahead of German GDP data

The EUR/USD pair is struggling to extend its recovery move above the immediate resistance of 1.0870 in the early Tokyo session. The major currency pair delivered a rebound move from the previous week’s low around 1.0840 amid a restricted upside in the US Dollar index (DXY).

EUR/USD News

Gold trapped bulls into the Fed and NFP Premium

Gold trapped bulls into the Fed and NFP

Gold prices steadied, with gains capped by the stronger dollar and analysts at TD Securities argued that the yellow metal need only close above the $1,935 range to catalyze a marginal buying program, whereas a close below the $1,890 mark is required to spark a trend follower selling flow.

Gold News

Hedera missed the opportunity to reach that target before the fade kicked in

Hedera missed the opportunity to reach that target before the fade kicked in

Hedera (HBAR) price has been shooting for the starts but looks to be dropping like a stone now. Just like Icarus, who flew too close to the sun, this time, Hedera came just not close enough to the projected price target for this rally.

Read more

Central bank fest as dollar continues its decline

Central bank fest as dollar continues its decline

The focus this week is the Federal Reserve meeting, the Bank of England rate decision and Monetary Policy Report and the ECB meeting. This troika of central bank decisions could set the tone for the rest of the year: the Federal Reserve passing the baton of global leader when it comes to tightening monetary policy.

Read more

Majors

Cryptocurrencies

Signatures