Fitch Ratings downgraded Chinese property giant Evergrande and its subsidiaries Hengda Real Estate Group and Tianji Holding Limited from C to Restricted Default (RD) due to the failure to pay coupons due November 6th on $1.24 billion of bonds.
Fitch cited lack of clarity regarding the restructuring plan of the Chinese company as one of the reasons for the downward rating. Another driver of the rating downgrade cited is the risk off cross default, as holders of Evergrande’s other US notes could decide on immediate payment if the bond trustee or the holders of at least 25% in aggregate principal amount of the notes declare so.
Evergrande has been one of the great beneficiaries of the growth of Chinese cities the last twenty years, making its CEO founder Xu Jiayin, the wealthiest person in Asia in 2017. The company owns more than 1300 projects in approximately 280 cities. Its growth has been fueled by $300 billion in debt, just as the Chinese government has started cracking down on financial risk.
Evergrande is listed on the Hong Kong stock exchange.
Earlier this month the Securities and Exchange Commission adopted amendments on towards requiring that listed companies be subject to inspection and audit by the Public Company Accounting Oversight Board (PCAOB), a non-profit corporation established by Congress to oversee audits of public companies. This move was widely seen as being directed toward Chinese companies.
According to the US-China Economic and Security review Commission as of May 5, 2021 there were 248 Chinese companies listed on the NYSE, NASDAQ and NYSE American, the three largest US exchanges, with a total market capitalization of $2.1 trillion.
(By Feike de Jong)