Chinese real estate developer Evergrande suffered a default

This is the latest twist in the real estate crisis in the world’s second-largest economy. At a time when their financial health worries the markets, two Chinese real estate developers have defaulted on loans totaling 1.6 billion dollars, estimated the rating agency Fitch, Thursday, December 9.

Real estate and construction account for more than a quarter of China’s gross domestic product (GDP) and serve as a powerhouse for many other sectors, such as steel and furniture. But to reduce the indebtedness of the sector, Beijing last year tightened the conditions of access to credit for real estate developers. Evergrande, long number one in the sector, has since found itself short of cash and its financial situation has worsened considerably in recent months.

All-out and sometimes risky investments (tourism, leisure, digital, electric car, etc.) also explain its precarious situation. The group’s setbacks lead, in turn, to a crisis of confidence among potential buyers. As a result, sales and prices of real estate are on the decline in many Chinese cities. Evergrande is strangled by an abysmal debt of around 260 billion euros and has struggled for several months to honor his interest payments and his apartment deliveries.

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On November 6, the group should have paid a repayment on interest representing $ 82.5 million (73.1 million euros). He had a one-month grace period, which ended on Tuesday. Since, “No announcement has been made by the company or its creditors concerning the repayment”, Fitch pointed out on Thursday. As a result, the financial rating agency downgraded Evergrande’s solidity rating by one notch, to the penultimate level of its nomenclature.

In September, the group admitted for the first time that they might not be able to honor all of their commitments. Despite several missed deadlines, Evergrande had so far always managed to repay its creditors in extremis. The tone changed last week, however, when Evergrande once again warned of its financial capabilities. This is the first default for the Chinese real estate giant.

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Kaisa in turmoil

The Chinese promoter Kaisa, much smaller in size than Evergrande but one of the most indebted in China, also made ” fault “ on a refund, according to Fitch. Kaisa should have paid a repayment of 353 million euros on loan interest on Tuesday.

The group, twenty-seventh in China in terms of turnover, warned last week that it risked finding itself in default of payment. Kaisa has 17,000 employees. In 2015, it was the first Chinese real estate group to be the subject of a default on dollar bonds.

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The World with AFP