Evergrande onshore bond trading suspended after downgrade
Group's main unit, Hengda Real Estate Group Co Ltd,
applied on Thursday to suspend trading of its onshore corporate
bonds following a downgrade, as the country's No. 2 property
developer wrestles with a liquidity crisis.
The application follows repeated trading freezes of the bonds in recent days by the Shanghai and Shenzhen stock exchanges due to volatile trade.
With total liabilities of more than US$300 billion, Evergrande is scrambling to raise funds.
Hengda received notice on September 15 from rating agency China
Chengxin International (CCXI) that the bonds' ratings had been
downgraded to A from AA, and that both the bonds' ratings and
its issuer rating were put on a watch list for further
downgrades, it said in a stock exchange filing.
Hengda applied to suspend trade of its onshore corporate bonds for one day, it said. On the resumption of trade on September 17, its Shanghai and Shenzhen exchange-traded bonds will only be traded through negotiated transactions.
The company's January 2023 Shenzhen-traded bond
was last quoted at 24.99 yuan (US$3.88) on Wednesday, and
its Shanghai-traded May 2023 bond traded at 30
James Shi, distressed debt analyst at credit analytics provider Reorg, said that an Evergrande default has been largely priced into the market, and that a recovery ratio will likely be low in the case of an expected restructuring.
"The market is pretty certain Evergrande will default," Shi said. A very low recovery ratio would be due partly to deep losses at many of Evergrande's non-core businesses, making them hard to liquidate, he said.
A report by CreditSights this week said the probability of liquidation was low if Evergrande defaults.
A Shanghai-based vulture bond fund manager, who specialises in junk-rated bonds, said if Evergrande's bonds fell below 20 US cents, the valuation would be attractive for patient investors as a restructuring may take several years.
In the offshore market, Evergrande's 8.75 percent June 2025 dollar bond was trading at 29.375 US cents on Thursday morning, up about 4 US cents from lows on Wednesday, according to financial data provider Duration Finance.
Goldman Sachs said in a report that because Evergrande has dollar bonds issued by both the parent company and a special purpose vehicle, recoveries in a potential restructuring could differ between the two sets of bonds, and any potential restructuring process may be prolonged.