China’s second-largest real estate firm Evergrande stirred fears of crashing the Chinese property sector after it recently warned of defaulting on its $300 billion debt.
The world’s most indebted company warned last week that it is likely to default on its liabilities as it struggles to refinance, triggering trading suspensions in Shenzhen and Shanghai.
With investors, banks, suppliers, and homeowners exposed to Evergrande’s $300 billion debt, regulators echoed concerns that a default may agitate the Chinese economy.
“In the face of the selloff, developers should be panicking,” said Eddie Chia, portfolio manager at China Life Franklin, adding that he expects more defaults in the property sector next year.
Rating agency Fitch cut down the rating of Evergrande and subsidiaries Hengda Real Estate Group Co and Tianji Holding Ltd to CC, flagging very high levels of credit risk on Sep. 7.
“We believe credit risk is high given tight liquidity, declining contracted sales, pressure to address delayed payments to suppliers and contractors, and limited progress on asset disposals,” Fitch said.
The downgrade followed rating agency Moody’s similar slashing of Evergrande’s rating, which warned that the company is unlikely to refinance.
Reports from China of Evergrande’s unpaid employees protesting outside the company’s offices also surfaced on Sep. 8.
Evergrande reportedly employs 200,000 people and indirectly creates 3.8 million jobs in China.
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