China Evergrande, onshore bond trading suspended after downgrade

China Evergrande, onshore bond trading suspended after downgrade

Hengda Real Estate Group Co. Ltd., the main unit of China Evergrande Group (3333.HK), on Thursday asked to suspend trading of its onshore corporate bonds after a downgrade. As the No. 2 real estate developer in the country struggling with the liquidity crisis.

The application of frequent freezes in bond trading in recent days by the Shanghai and Shenzhen Stock Exchanges due to trading volatility.

With a total liability of over $ 300 billion, Evergrande is considering raising funds in the midst of a catastrophic recession with far-reaching consequences, managed collapse or government bailouts. To learn more

The suspension of Hendga’s onshore corporate bond trading indicates an increased possibility of default and restructuring, market participants said.

Hengda received a notification on September 15 from China Changzin International (CCXI) rating agency that the bond rating has been downgraded from AA to A and both the bond and issuer ratings have been placed on the checklist for further downgrade. When filing a stock exchange.

Hengda has asked to suspend trading in its onshore corporate bonds for one day, he said. When trading resumes on September 17, its Shanghai and Shenzhen-listed bonds will only be traded through traded transactions.

A bond trader, who declined to be identified, said changes in the trading system could lead to limited holdings and volatility.

He said, “Many companies will change their bond trading system before defaulting.

The company’s January 2023 Shenzhen-traded bond last listed at 24.99 yuan, and the May 2023 bond in Shanghai traded at 30 yuan.

James Shi, a distressed debt analyst at credit analysis provider Riorg, said Evergrande’s default market was largely discounted and recovery rates were likely to fall if planned restructuring took place.

“The market is certain that Evergrande will default,” Xi said. Many of Evergrande’s secondary businesses have very low recovery rates, partly due to serious losses, which will make them difficult to eliminate, he said.

A report by CreditSites this week says liquidation is less likely if Evergrande defaults.

The Shanghai-based vulture bond fund manager, who specializes in junk-rated bonds, said the valuation would be attractive for patient investors if the Evergrande bonds fall below 20 cents, as restructuring could take several years.

In the offshore market, Evergrande’s 8.75% June 2025 dollar bond traded at 29.375 cents on Thursday morning, rising nearly 4 cents from Wednesday’s low, according to financial data provider Period Finance.

Goldman Sachs said in a report that since Evergrande has dollar bonds issued by the parent company and a special purpose vehicle, the potential restructuring may differ between the two series of recovery bonds and any potential restructuring process could be delayed.

Concerns about the possible contagion of Evergrande’s debt crisis spread to other Chinese high-income issuers. The Chinese high-yield dollar index (.MERACYC) fell to 374,646 on Thursday morning, the lowest level since April 14, 2020.

CCXI’s developer downgrade was second this month. The downgrading of AeGrande and its onshore bonds from AAARA to AAA on September 2 disqualified the bonds for repo trading. To learn more

The S&P rating agency downgraded Evergrand from “CC” to “CC” with a negative outlook this week, citing low liquidity and default risks, including the possibility of debt restructuring, while Fitch said Evergrand’s default could increase credit to a number of industries.

Sneha Mali

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