Already insolvent or about to? The rating agency Fitch is downgrading the highly indebted Chinese real estate giants Evergrande and Kaisa. Beijing wants to stay out of it, is betting on the market.
The heavily indebted Chinese real estate groups Evergrande and Kaisa continue to come under pressure. China’s government does not want to help save – and the rating agency Fitch downgraded the creditworthiness of the companies on Thursday and warned of a default.
The credit watchers referred to reports that both groups had not met recent payment obligations. Evergrande has more than $ 300 billion in debt. Because of the uncertainties, Kaisa stock has been suspended from trading on the Hong Kong Stock Exchange.
Despite the shocks to the real estate industry, China’s central bank chief Yi Gang signaled that a state bailout is not planned. According to the central bank, the governor said that Evergrande’s risks were a “market operation” that was appropriately dealt with “according to the principles of the market and the rule of law”. As a mature financial center, Hong Kong has an efficient system for addressing such problems.
“Short-term risks”
In his opinion, the “short-term risks of individual real estate companies” will not affect normal financing on the market in the medium or long term, Yi Gang was convinced. The central bank advocates a fair market environment. Companies and shareholders would have to deal appropriately with “their own debts” and protect the interests of creditors in accordance with legal requirements and market regulations.
The rating agency Fitch downgraded Evergrande and Kaisa to “Restricted Default”, which means something like “restricted credit default”. The rating is only one level above the classification for default. Kaisa failed to repay a senior bond of $ 400 million as of Tuesday’s reporting date.
At Evergrande, Fitch criticizes the lack of interest payments. These would originally have been due at the beginning of November. Fitch also said that no payments had been made within the grace period up to Monday. Evergrande did not answer questions about the commitments: “That is why we assume that they have not been paid.”
No guarantees
A week ago, Evergrande itself warned of possible financial difficulties: after a financial review, no guarantee can be given that the group will have sufficient funds to meet its obligations. The authorities sent a working group to the company. A restructuring of the credit burdens is possible.
According to experts, the downgrade will not only increase the pressure on companies, but also on the authorities to publish proposals for restructuring. The Chinese government has been taking action against real estate companies’ high indebtedness for months. By not coming to Evergrande’s aid, the message is reinforced that times have changed and that no one can hope for help from Beijing.
The central bank had also downplayed macroeconomic risks, accusing Evergrande of “bad management” and “reckless expansion”.
Source From: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
