Home > Finance > Fitch warns that an Evergrande standard could have major economic effects in China

Fitch warns that an Evergrande standard could have major economic effects in China

HONG KONG, September 15 (Reuters) – Fitch rating agency said many sectors could be exposed to increased credit risk if China’s No. 2 real estate developer Evergrande Group (3333.HK) was standard, although the overall impact on the banking sector would be manageable.

Evergrande strives to raise money to pay its many lenders and suppliers, while switching between a messy collapse with far-reaching consequences, a successful collapse or the less likely prospect of rescue from Beijing. Read more

Regulators have warned of greater risks to the country’s financial system if the company’s debts of $ 305 billion are not covered.

“We believe that a standard would strengthen credit polarization among homebuilders and could lead to headwinds for some smaller banks,” Fitch said in a statement. note late on tuesday.

Fitch downgraded China Evergrande Group to “CC” from “CCC +” on September 7.

On Tuesday, Evergrande said it had hired advisers to examine its financial options and warned of risks of bankruptcy amid disruptions in property sales and a lack of progress in the divestment of assets. Read more

Fitch said 572 billion yuan ($ 88.8 billion) of Evergrande’s borrowing was held by banks and other financial institutions, but banks may also have indirect exposure to the developer’s suppliers, who owe 667 billion yuan for goods and services.

“Smaller banks with higher exposure to Evergrande or other vulnerable developers may face significant increases in non-performing loans (NPLs), depending on how any credit event involving Evergrande develops,” says Fitch.

But the agency added a new sensitivity test for the People’s Bank of China, which showed that the average capital adequacy ratio of the 4,000 banks in the country would only fall modestly if the NPL quota for real estate development loans were to rise by 15 basis points.

Evergrande’s listed stock in Hong Kong fell as much as another 5% to HKD 2.82 on Wednesday morning, a recent low since January 2014.

Its property management unit (6666.HK) and EV unit (0708.HK)however, bounced as much as 10.4% and 9.3%, respectively.

In the debt market, Evergrande’s Shanghai trade decreased in July 2022 by 5.6% to 28.3 yuan, while the dollar bond maturing in March 2022 fell 20% to 27,502 cents, yielding more than 500%.

Fitch also said that the risk of significant pressure on house prices in the event of bankruptcy would be low and expected the government to act to protect households’ interests in securing home deliveries.

On Wednesday, about 40 protesters stood near the entrance at Shenzhen’s Evergrande headquarters, preventing them from entering through dozens of security personnel.

This followed chaotic scenes at headquarters two days earlier, when dissatisfied investors crowded the lobby to demand repayment of loans and financial products.

Some videos circulating on Chinese social media also showed what are described as Evergrande-related protests elsewhere in China.

($ 1 = 6.4426 Chinese yuan yuan)

Reporting by Kanishka Singh in Bengaluru and Clare Jim in Hong Kong; Additional reporting by David Kirton in Shenzhen and Andrew Galbraithin in Shanghai; Edited by Stephen Coates & Shri Navaratnam

Our standards: Thomson Reuters Trust Principles.

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