By
Tolu Ajiboye
September 25th, 2023
Offshore creditors whom China Evergrande owes over $19 billion are arguably going to be the last to be paid off, whenever the firm has the capacity to do so.
Financially embattled property developer, China Evergrande Group (HKG: 3333) has finally been issued a “selective default” rating by the international rating agency S&P Global. As reported by Bloomberg, the rating became necessary as the property developer failed to make the expected payments to creditors for the first time since its woes were blown open to the public.
“We assess that China Evergrande Group and its offshore financing arm Tianji Holding Ltd. have failed to make coupon payments for their outstanding US-dollar senior notes,” S&P said in a statement. “Evergrande, Tianji, or the trustee have made no announcement or any confirmation with us on the status of the coupon payments.”
With China Evergrande owing as much as $300 billion in total liabilities, the company comes off as the biggest failure in modern China’s overly indebted real estate industry. With the signs of a potential default imminent earlier in the month, Alicia Garcia-Herrero, Natixis’ chief economist for Asia-Pacific said the firm’s failure to make the payments as required should have been tagged as a technical default long ago.
“China is not making it clear because there’s no pressure to make it clear,” she said. “Ratings [agencies] should be pushing. Some investors did push. Nobody wants to label this because they don’t want to bear the consequences. Everybody’s trying to increase what they can get out of it.”
The rating agencies she called out seem to have woken out of their slumber as Fitch Rating called China Evergrande a default back on December 9. Per the reports, the company has asked for the ratings to be withdrawn, a request that the firm has promptly complied with.
China Evergrande Rating: Calling a Spade a Spade
The rating of China Evergrande is a way to call a spade a spade, a move that may help stakeholders of interest to start tackling the situation head-on. A major promising advantage is that the rating is likely to help other companies that are trailing on the path of financial distress to restructure their debt liabilities.
“Our view on the Evergrande situation is that ultimately, that’s an extremely healthy development, because there needs to be a … [worked-out] precedent for companies to restructure their liabilities for it to be a truly functioning credit market,” Jason Brady, president, and CEO of Thornburg Investment Management, as published in an earlier report by Coinspeaker, citing CNBC.
Evergrande has already expressed its plans to restructure its debt for both local and foreign creditors. While the details of this restructuring are still obscure to the public, there are speculations that the company will prioritize the settlement of local creditors in order to wade off social unrest.
Offshore creditors whom China Evergrande owes over $19 billion are arguably going to be the last to be paid off, whenever the firm has the capacity to do so.