The development marks the beginning of the end for the sprawling real estate empire started 25 years ago by founder Hui Ka Yan,setting off a lengthy battle over who gets paid from what remains.
It also poses a challenge to the Chinese government’s efforts to prevent a debt crisis in the property sector from sparking broader contagion. Authorities have scored some successes,with markets taking the most recent developer debt stumbles in their stride after a reserve-ratio cut announced by the central bank on Monday.
Evergrande,which disclosed more than $US300 billion of total liabilities as of June,said in a brief exchange filing on December 3 that it plans to “actively engage” with offshore creditors on a restructuring plan. The company is planning to include all its offshore public bonds and private debt obligations in the restructuring,people familiar with the matter said separately.
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“The downgrade may not have an overt or immediate impact on the Chinese process,but may subtly increase pressure on the company (and regulators) to quickly reveal initial restructuring proposals,” said Brock Silvers,chief investment officer at Kaiyuan Capital in Hong Kong.
Fitch also downgraded Kaisa to restricted default. The ratings cut may also trigger cross defaults on the developer’s $11.2 billion of outstanding dollar debt. The company had become a symbol of the boom years in Chinese credit markets after emerging from a high-profile default in 2015.
Chinese junk dollar bonds held earlier gains of as much as three cents on the dollar after the downgrades.