China Evergrande Group is defaulting on a portion of a planned $4 billion bond redemption, credit ratings agency Fitch Ratings said on Wednesday, confirming speculation that the developer was going to default.
Evergrande is “preparing a restructure of its capital structure including a voluntary bond restructuring, leading to a temporary cash flow deficiency,” Fitch said.
“As a result, Evergrande will be unable to refinance the issue in the coming weeks. We expect the issuer will work toward successfully issuing the note in late December, otherwise the rating on the 2020 bonds will be lowered.”
Evergrande issued its 2020 notes at an interest rate of 7.875% in June.
Fitch’s forecast for Evergrande is that the company will be able to sell about CNY1.7 billion-3.0 billion in new bonds in December. This will enable Evergrande to post sufficient cash balances to meet its coupon payments to investors in January, Fitch said.
On Wednesday, Evergrande shares were down 8.9% after reaching a low of CNY12.3 in early trade, the lowest level since December 2016.
Since issuing its 2020 bonds, Evergrande has faced escalating losses, as banks scaled back Evergrande’s access to its own credit facilities, raised restrictions on lending to Evergrande, and an accounting probe by China’s audit body.
Evergrande’s net debt rose to about CNY700 billion in the first half of this year from about CNY400 billion at the end of 2017.
Evergrande Holdings’ bonds maturing between 2020 and 2022 were downgraded by all of the major ratings agencies last week.
Fitch was the first major ratings agency to revise its rating on Evergrande’s 2019 bonds, cutting it to BB- from BBB-. The outlook on the rating was downgraded to negative from stable.
Credit Suisse said in a research note on Monday that Evergrande’s bond holders should expect a voluntary bond exchange or restructuring on Friday.
Evergrande did not immediately respond to a request for comment.
(Reporting by Sherry Jacob-Phillips; editing by Darren Schuettler)