Fitch downgrades Evergrande, Kaisa . . .
Last Thursday, international credit agency Fitch Ratings downgraded its ratings for Chinese property developers Evergrande and Kaisa Group to ‘restricted default’ – one grade above ‘default,’ its lowest ranking. The downgrading of Evergrande, now the world’s most indebted developer, followed the company’s failure to make C$105 million in interest payments following a 30-day grace period that expired last Monday. A filing from the Hong Kong Stock Exchange shows that Evergrande founder and chairman Hui Ka Yan’s stake in the company has fallen below 60 per cent after a forced sale this week of pledged shares worth C$82 million. The Kaisa Group similarly missed a deadline for a C$511-millon bond payment last Tuesday.
Beijing prioritizes ‘stability' . . .
Since Evergrande’s liquidity crunch first emerged in September, many have been waiting to see whether the Chinese government would step in to bail out the company. Yi Gang, governor of the Chinese central bank, said during a speech that aired last Thursday that the Evergrande crisis is “a market incident” that will be handled according to market principles and law, offering assurances to “protect the rights of shareholders and creditors.” Meanwhile, at last week’s Central Economic Work Conference, a key year-end meeting of senior Chinese Communist Party officials that sets the agenda for China’s economic policy in the new year, stressed economic stability as a top priority for 2022. Senior officials at the meeting recommitted to clamping down on property speculation in the real estate sector to “meet the reasonable housing needs of buyers” and promoting “a virtuous cycle and healthy development” to help builders keep credit risks in check.
Delicate balancing act in 2022 . . .
Despite some positive signals from China’s policy-makers, Evergrande, Kaisa, and the many other debt-laden Chinese real estate companies will likely continue struggling with their financing problems in the coming year, especially as China’s housing market cools. New home prices, sales, and construction fell to historic lows in November in many Chinese cities, further straining developers’ access to funding. Beijing appears reluctant to relax the tightened lending environment for builders and homebuyers anytime soon. This means that in 2022, Beijing will be delicately balancing prudent monetary policies and the injection of liquidity to contain a potential fallout that could reach global markets.
- Fangchan (China Real Estate Association): 从中央经济工作会议看明年房地产市场新动向
- The Guardian: China unveils package to boost economy as Evergrande teeters
- South China Morning Post: Evergrande joins Kaisa in ‘restricted default’ after missing bond payments, Fitch says