Evergrande, Kaisa cut by Fitch to default after missed pay deadlines

December 9, 2021: Developers China Evergrande Group and Kaisa Group were downgraded to "restricted default" by rating agency Fitch due to non-payment of offshore bond dues, while a source said Kaisa had started work on restructuring its $12 billion offshore debt.

The downgrades came on Thursday even as Evergrande and Kaisa have not officially announced the defaults that could result in long debt restructuring processes.

In its note on Evergrande, Fitch said the developer did not respond to its request for confirmation on the coupon payments worth $82.5 million that were due last month with the 30-day grace period ending this week.

"We are therefore assuming they were not paid," it said.

Fitch defines a restricted default as indicating an issuer has experienced a default or a distressed debt exchange but has not begun winding-up processes such as bankruptcy filings and remains in operation.

The non-payment has triggered an "event of default" on Evergrande's bonds and its other U.S. dollar notes will become due immediately and payable if the bond trustee or holders of at least 25% in aggregate amount declare so, Fitch said.

The same is true for Kaisa, which, according to Refinitiv data, has note maturities totalling $2.8 billion next year, and $2.2-3.2 billion maturities each year between 2023-2025.

Fitch said there was limited information available on Kaisa's restructuring plan after it missed $400 million in offshore bonds repayment on Tuesday.

Evergrande, which has over $300 billion in liabilities and is at the heart of a property crisis in China, said last week that it planned to forge ahead with a restructuring of its debt.

KAISA TALKS

Kaisa is expected to soon sign a non-disclosure agreement (NDA) with Lazard, the adviser of a group of bondholders, the source and another person told Reuters. The bondholders hold over 25% of Kaisa's $12 billion offshore bonds.

The NDA will lay the groundwork for further discussion on forbearance and financing solutions.

Formal discussions on forbearance and financing plans could commence once the NDA is in place, the people said, who declined to be named as the talks are confidential.

But an agreement is unlikely in the next few weeks as the talks are still at an early stage, the first source said.

Kaisa said it was open to talks on forbearance, but declined to comment on the rest of the details. Lazard declined to comment.

The group of Kaisa offshore bondholders, who say they own 50% of the notes that were due on Dec. 7, sent the company draft terms of forbearance late on Monday.

The group previously offered $2 billion in fresh debt to help Kaisa repay its onshore and offshore debts, sources have said. Other financing ideas are also on the table.

Kaisa is also in talks with another bondholder group, the first person said.

Kaisa's default came after it failed last week to secure the minimum 95% approval needed from offshore bondholders to exchange the bonds that were due Dec. 7 for new notes due June 6, 2023, at the same interest rate.

Trading in Kaisa's shares, which have lost 75% this year, was suspended on Wednesday. Evergrande's stock has plunged 88% this year amid the debt crisis that has fuelled worries about a broader contagion and prompted officials to offer assurances that fallout can be contained.

The risk caused by a few Chinese real estate companies in the short term will not undermine Hong Kong's capital market, Chinese central bank governor Yi Gang said.

Reuters