Evergrande and Kaisa defaulted by Fitch after missed payment deadlines

  • Cross-faults triggered for both companies – Fitch
  • Kaisa begins work on $ 12 billion offshore debt restructuring – source
  • Kaisa will soon sign an NDA with the advisor of certain bondholders – sources
  • Decisions on abstention, financing plan to take time – sources

HONG KONG / LONDON, Dec. 9 (Reuters) – Rating agency Fitch downgraded property developers China Evergrande Group and Kaisa Group on Thursday, saying they had defaulted on offshore bonds, while a source said that Kaisa had started work on restructuring its $ 12 billion offshore debt.

Downgrades to so-called “restricted default” status occur even though Evergrande (3333.HK) and Kaisa (1638.HK) have not officially announced defaults that could lead to protracted debt restructuring processes.

The fate of Evergrande, which has over $ 300 billion in liabilities, and other indebted Chinese real estate companies has hit financial markets in recent months amid fears of spillover effects around the world, though Beijing has repeatedly sought to reassure investors.

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In his memo to Evergrande, Fitch said the developer had not responded to his request for confirmation of coupon payments worth $ 82.5 million that were due last month, the 30-month grace period. days ending this week, and therefore assumed they had not been paid. “

Evergrande and Kaisa did not immediately respond to Reuters requests for comment on Fitch’s decision.

“The Evergrande and Kaisa defaults bring us to the second stage of this Chinese real estate slowdown, as systemic risk is gradually being replaced by idiosyncratic risk,” said Robin Usson, credit analyst at Federated Hermes.

“It will be interesting to see the role played by state-owned enterprises (state-owned enterprises) in the restructuring process, the level of ‘control’ the government has over this ‘market-oriented approach’,” Usson added.

People’s Bank of China (PBOC) Governor Yi Gang said on Thursday that the rights of Evergrande shareholders and creditors would be “fully respected” on the basis of their legal seniority, and that the risk caused by some companies Chinese real estate short-term would not affect Hong Kong’s capital market. Read more

Fitch defines narrow default as indicating that an issuer has experienced a default or distressed debt swap, but has not started liquidation processes such as bankruptcy filings and remains in business.

The non-payment has triggered an “event of default” on Evergrande’s bonds and its other US dollar notes will become immediately due and payable if the bond trustee or holders of at least 25% of the total amount on declare, Fitch said.

The same “cross-default” is true for Kaisa, who, according to data from Refinitiv, has note maturities totaling $ 2.8 billion next year and $ 2.2-3.2 billion in maturities each. year between 2023 and 2025.

Fitch said there was little information available about Kaisa’s restructuring plan after missing a $ 400 million offshore bond repayment on Tuesday.

Evergrande said last week that he plans to move forward with a debt restructuring.

KAISA SPEAKS

Kaisa is expected to sign a non-disclosure agreement (NDA) soon with Lazard, the adviser to a bond group, the source and another person told Reuters. Bondholders own over 25% of Kaisa’s $ 12 billion offshore bonds.

The NDA will lay the groundwork for further discussions on forbearance and funding solutions, said the people, who declined to be named because the discussions are confidential.

But a deal is unlikely in the coming weeks as talks are still at an early stage, the first source said.

Kaisa said he was open to forbearance talks, but declined to comment on details. Lazard declined to comment.

Kaisa’s group of offshore bondholders, which say they own 50% of the notes due on December 7, sent the company draft forbearance terms on Monday evening. Read more

The group had previously offered $ 2 billion in new debt to help Kaisa pay off its onshore and offshore debts, sources said. Other fundraising ideas are also on the table. Read more

Kaisa is also in talks with another bond group, the first person said.

Kaisa’s default came after he failed last week to secure the minimum 95% approval required from offshore bondholders to swap bonds due December 7 for new notes due June 6. 2023, at the same interest rate.

Trading in Kaisa shares, which have lost 75% this year, was suspended on Wednesday. Evergrande stock has plunged 88% this year.

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Reporting by Clare Jim in Hong Kong and Karin Strohecker in London, additional reporting by Andrew Galbraith Writing by Sumeet Chatterjee Editing by Himani Sarkar and Mark Potter

Our Standards: Thomson Reuters Trust Principles.


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Elaine R. Knight