Fitch has become the first rating agency to declare that China Evergrande’s overseas bonds are in default after the world’s most indebted developer failed to make a crucial interest payment this week. The announcement marked the most significant moment yet in the developer’s marathon liquidity crisis that has spread to other businesses across the country’s vast real estate sector and fuelled global concerns about the potential impact on China’s economy. Evergrande, which has liabilities exceeding $300bn, missed a Monday deadline to repay bond coupons totalling $82.5m. The group had still not transferred the funds as of Wednesday in New York, according to people familiar with the matter. Fitch stated that the company did not respond to a request for confirmation on the coupon payments, and it was therefore assuming they had not been made. Neither the company nor the Chinese government has confirmed that Evergrande has defaulted on its debts, though the company said on Friday there was “no guarantee” it could meet its debt repayments as it entered a restructuring process with assistance from local government officials. Fitch also stated on Thursday that Kaisa, another heavily indebted developer that failed to repay a $400m bond that matured on Tuesday, was in restricted default. A person familiar with the situation said that Kaisa was close to signing non-disclosure agreements with advisers to investors.
Evergrande’s debt crisis has for months transfixed international bond markets, where it has borrowed heavily and has about $19bn outstanding, compared with $12bn for Kaisa. Evergrande has missed a series of interest payments since late September, but until this week had avoided default by transferring the funds before the end of 30-day grace periods. Separately on Thursday afternoon, Yi Gang, governor of the People’s Bank of China, told a seminar in Hong Kong that Evergrande’s failure to meet its obligations was a market event and that the rights of investors would be respected.
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