Deep in debt crisis and unable to pay, Evergrande Group was convicted of default by Standard & Poor’s

WASHINGTON— 

The Chinese real estate giant Evergrande Group, which has been on the verge of default in recent months, was finally formally judged “default” by the international credit rating agency Standard & Poor’s (S&P) on Friday (December 17).

According to a Reuters report, the direct cause of Evergrande’s default was that earlier this month, Evergrande had another bond overdue and insolvent.

“We assess that China Evergrande Group and its offshore financial subsidiary Tianji Holdings have failed to repay another senior US dollar bill that has matured,” Standard & Poor’s stated in a statement.

S&P also revealed in the statement that after S&P downgraded Evergrande’s credit rating to “selective default”, Evergrande had asked S&P to revoke this rating.

“Selective default” is slightly better than “default”. Companies convicted of “selective default” have defaulted on certain debts, but have not yet defaulted on other debts. Once a company is formally determined to be in “default” by the credit rating agency, all creditors of the company can require the company to pay all debts, including debts that are not yet due, immediately.

“Neither Evergrande, Tianji nor the client made any announcements or confirmed us about the status of the bill payment,” the S&P statement said.

Evergrande Group was founded in 1996 in Guangzhou, China. It used to borrow heavily to develop real estate and quickly became China’s leading real estate giant. However, the business model that was very popular in China at the time has changed and is no longer seen by the government. Since last year, the Chinese government has issued hundreds of new regulations. On the one hand, it forces real estate companies to reduce debt risk, and on the other hand, it wants to develop affordable housing for the people.

In recent months, the Evergrande Group has suffered from poor sales, a large number of debt maturities, and the company’s serious lack of cash flow. This has sparked concerns from the outside world and the market that the company may default or even collapse.

In order to avoid default and bankruptcy, Evergrande Group has been trying its best to raise funds through the sale of its assets in recent months. The founder Xu Jiayin and his wife Ding Yumei have also realized through the sale of shares in the Evergrande Group, but compared to the total amount of Evergrande. With debts of up to US$305 billion, these efforts to dismantle the East Wall and make up the West Wall seem to be in vain.

After Evergrande suffered a debt crisis and fell into the edge of default, the Chinese government has not directly extended a helping hand to it. On the one hand, it asked Xu Jiayin to sell his personal assets to repay debts. It will have a major impact on China’s financial market or the overall economy.

Evergrande is not the only Chinese real estate developer in a debt crisis. Other well-known real estate companies such as Kaisa and Sunshine 100 have recently reported that their debts are overdue and are on the verge of default.

It is worth observing at present, after Evergrande is convicted of default, what next steps Evergrande’s other creditors will take, whether the Chinese government will lend a helping hand to Evergrande, and whether Evergrande Group itself will enter into debt restructuring or The procedure of bankruptcy liquidation.The Wall Street Journal previously reported that since September this year, global investors holding Evergrande Group’s US dollar bonds have begun discussions with lawyers and financial advisers as to what recourse options creditors have if Evergrande defaults. The biggest unresolved issue is how the Chinese government will deal with the possible bankruptcy of Evergrande.