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Bond Market News

Evergrande Downgraded to C from CC by Fitch

Evergrande and its subsidiaries Hengda and Tianji were downgraded to C from CC by Fitch reflecting that Evergrande is likely to have missed the coupon payment on its 8.25% 2022s on September 23. Fitch highlighted that not only did the developer or a trustee not make an announcement, but Fitch has also not obtained any confirmation. Fitch meanwhile made a recovery analysis of the company assuming it would be liquidated during bankruptcy, highlights of which are given below:

  • A 10% administrative claim
  • 60% advance rate on  net inventory reflecting likely steep discounts needed to sell large land banks
  • 70% advance rate on trade receivables from the sale of properties; 87% of trade receivables are due within 90 days
  • 60% advance rate on Property, Plant & Equipment comprising buildings and ongoing construction
  • 10% advance rate to investment properties based on a conservative 6.5% cap rate on annualized rental income
  • 100% advance rate applied to available cash, after adding trade payables to the liability waterfall

Fitch excluded CNY88bn ($13.6bn) investments in JVs as they may not be easily liquidated. Evergrande’s liquidation value was taken after de-consolidating Hengda, China Evergrande NEV (Evergrande Auto) and Evergrande Property Services Group. Fitch gave a recovery rating of RR6 for Evergrande and its subsidiaries’ senior bonds reflecting a recovery of 0%–10% of current principal and related interest given default.

Separately, more details were revealed regarding yesterday’s news where Reuters sources’ reported that China asked state-backed firms to buy some of Evergrande’s assets. China VankeChina Jinmao and China Resources Land are among the government-backed property developers that have been asked to purchase assets from Evergrande, the report said. Regarding SOE’s buying the assets, Lucror Analytics said “this may help alleviate Evergrande’s short term liquidity and go some ways to restoring market confidence in the sector”.

Evergrande’s dollar bonds are lower again with its 9.5% 2022s down 0.4 points to 25 and its 9.5% 2024s down 0.8 points to 24.

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