Business & Economy

Concern in China over real estate company Evergrande credit downgrade

Beijing, Sep 10 (EFE).- Chinese real estate company Evergrande suffered two cuts this week in the rating of its debt by Fitch and Moody’s agencies, spreading fears of bankruptcy among the company, which owes about $ 305 billion.

Moody’s cut the company’s valuation Tuesday, with Fitch doing the same a day later by lowering the rating from CCC+ to CC, warning of “high risk of default.”

China Chengxin, one of China’s major credit bureaus, also downgraded Evergrande’s debt rating from AAA to AA, placing it on a watch list for possible further downgrades in the future.

The group, founded in 1996, accumulated debts to pay for its real estate projects and their expansion to other sectors such as health services, electric vehicles or even sports.

However, the falling value of new home sales since the beginning of the year and Beijing’s new real estate regulations, aimed at combating speculation, have put Evergrande in trouble.

At the end of December, in the hope of controlling the increase in house prices, new regulations were approved that limited loans to large real estate developers, some of which, like Evergrande, were already accumulating large debts.

Since the beginning of July 2020 and due to new regulations, the fall in its income and profits between January and June of this year and the poor performance of its real estate businesses, Evergrande’s Hong Kong Stock Exchange shares have lost more than 84 percent of their value.

The real estate sector, one of the pillars of Chinese economic growth in recent decades, represents according to the National Statistical Office of China 7.5 percent of the country’s gross domestic product.

Despite its heavy weight on the economy, Chinese Vice Premier Han Zheng called in July for even greater scrutiny of the sector and efforts to “accelerate the development of public rental housing” and avoid the use of real estate to “stimulate short-term growth in the economy”.

Some Evergrande projects have already been put on hold as the company puts assets up for sale to generate liquidity and tries to negotiate with its suppliers to delay payments and avoid bankruptcy.

Its founder, billionaire Hui Ka-yan, recently warned of the risk that Evergrande would not be able to service its debts and that, consequently, its creditors would take legal action.

The effect of the possible bankruptcy of Evergrande, which employs more than 120,000 people, would be felt not only in the country but in global markets given the size of the group. EFE


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