The value of bonds and shares of property developer China Evergrande Group continues to fall, after being downgraded by two rating agencies, which calls into question its ability to restructure its debt.
The number two in China’s real estate market, Evergrande, has a debt load of 1.970 billion yuan (nearly 260 billion euros), prompting repeated warnings from China in recent months about the risk of the risk spreading. financial sector, particularly in the banking sector.
Moody’s Investors Service has announced that it has downgraded the rating of China Evergrande Group and its subsidiaries, in the wake of the downgrade decided by the Chinese rating agency China Chengxin International.
“The downgrade (by Moody’s) reflects the rise in liquidity and default risks at Evergrande given the large amount of debt maturing over the next six to 12 months,” explained Cedric Lai, vice president and senior analyst from Moody’s, in a press release.
The latter said that “the deterioration also reflects the poor prospects for indemnifying Evergrande’s creditors in the event of default.”
On the stock market, the Evergrande share lost as much as 9% on September 7 to its lowest level since July 2015. In addition, the bond issued by the group which will mature in May 2023 has sold until ‘to 20.45% of its face value, after falling 35% on September 6.
The downgrade announced by China Chengxin International made Evergrande bonds issued in China ineligible, due to the required refinancing operations, which triggered a major sell-off.
Traders explain that the lack of liquidity in “onshore” bonds means that a single order can have a massive impact on the value of the securities. However, Evergrande’s “offshore” bonds remained listed but at around 25% of their issue value according to market data provider Duration Finance.
Listed on the Hong Kong Stock Exchange, Evergrande shares ended September 7 down 7.75% after Goldman Sachs downgraded its recommendation to “sell” against “neutral.” The US bank has lowered its price target from 15.60 to 3.0 Hong Kong dollars.
“We expect the process of reducing the company’s leverage to be hectic, which could lead to significant discounts on real estate sales or possible asset disposals,” analysts said. by Goldman Sachs.
Since the start of the year, Evergrande’s market capitalization has fallen 76%. Moreover, Evergrande has admitted that it faces many risks if it fails to restart its construction activities, sell more assets and renew certain loans.
Even more so as Evergrande is being pressured by two creditors to repay its debts immediately, according to Bloomberg News. The group is facing strong pressure after having embarked on an all-out diversification of its activities, from leisure parks to cars.
Evergrande had already admitted to fighting to keep his activities afloat. But the amount of reimbursements claimed without delay could capsize it quickly. Thus, the two trust companies are among the main non-bank creditors of Evergrande. However, the debt of the real estate developer reached 75 billion euros in June.
The 152nd largest group in the world in terms of turnover according to the Fortune 500, said it was “at risk of default on loans.” A concern displayed by the rating agencies and by the Chinese authorities.
Beijing has publicly urged Evergrande to “actively” resolve its problems, as any liquidation would have far-reaching consequences. From an economic standpoint, Evergrande says it employs 200,000 people and indirectly generates 3.8 million jobs. From a social point of view, some owners, who have already paid for their accommodation, may never benefit from it.
China fears an overheating real estate sector, and has therefore decided to tighten the conditions of access to credit for developers. Evergrande can no longer sell any property until it has formally finished construction, in particular.