China Evergrande’s overseas bonds are officially in default, according to Fitch, which has become the first credit-rating agency to take that step.
It has been widely reported that Evergrande, the world’s most indebted property developer, missed a key bond payment worth about $82.5 million that was due to be paid to international investors on Monday. Fitch said that it had sought confirmation of payment from Evergrande but the company had not responded. “We are therefore assuming that they were not paid,” the agency said.
Evergrande has missed several interest payments over the past three months although until this week it has managed to avoid a formal default by transferring the money before the end of the 30-day grace periods.
Fitch had previously rated Evergrande’s overseas bonds as a C, meaning that they were near default. It has now downgraded them to Restricted Default, which means that they are in default but the borrower, in this case Evergrande, has not yet entered into formal bankruptcy proceedings.
Evergrande has yet to comment on the missed bond payment, although it warned last week that there was “no guarantee” that it would be able to meet its upcoming repayments.
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Evergrande was once China’s top-selling developer but built up debts of more than $300 billion as it expanded rapidly. The company was founded in 1996 by Hui Ka Yan, who was once China’s richest man, and claims to have built homes for more than 12 million people. As it grew it moved into other sectors, buying Guangzhou football team, creating an electric car business and investing in theme parks.
Hui has been selling his personal assets to raise cash to pay staff and to try to save the business. Last month he sold personal assets, including a villa in Hong Kong and private jets, worth about £815 million.
Evergrande’s troubles have sent shockwaves through the wider Chinese property sector. Kaisa, another developer with huge debts, has been struggling to keep up with its repayments. Fitch has also downgraded Kaisa to restricted default after it failed to repay a $400 million bond that matured on Tuesday. Kaisa has about $12 billion of international bonds outstanding, versus $19 billion outstanding for Evergrande.