Wednesday, October 27, 2021

S&P: No reason for Beijing to protect Evergrande — so far

The credit rating agency Standard & Poor’s said it is less likely that Beijing will step in to protect the bond of China Evergrande Group after its Sichuan distributor Everland Group went into default last week, but said there are scenarios under which Beijing would step in.

“Although the credit fundamentals of the company are weaker than Everland, Beijing has little incentive to bail out Evergrande given the debt-to-equity ratio is 4.4 times, so Evergrande could easily default on the bond,” S&P said in a note Friday.

China Evergrande has yet to say whether it will pay a coupon of 11 percent due on Aug. 18. On Tuesday, it said it would exercise an option to prepay part of the note, but added that it had reached “no agreement yet” with China Evergrande Credit Trust to pay the entire amount due, according to Reuters.

This week, the Fitch Ratings agency gave an intermediate rating of “restricted default” to the Evergrande Group’s $500 million unsecured notes due in 2023 because it believes the developer has insufficient liquidity to pay the coupon.

S&P noted that Evergrande’s recent capital injection, which raised its cash by 16.6 billion yuan ($2.3 billion), is sufficient to cover the company’s July payments. But the rating agency also said it expects Evergrande to record losses in the third quarter because of “immense debt servicing costs” over the last five years.

A spokesperson for China Evergrande confirmed its plan to pay August 17 coupon.

The October 2017 market debut of Evergrande, China’s biggest developer by volume, was the busiest ever among mainland stock offerings, with more than 75 million shares changing hands in the first minute, surpassing Alibaba’s record of 77.5 million shares. Shares have fallen by about 50 percent since the IPO, due to fears that the company’s financial health had deteriorated.

— Bloomberg

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