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Shares drop after default; Kaisa deal doubts: Evergrande update

The company and Kaisa Group Holdings were downgraded on Thursday to restricted default by Fitch Ratings.
Image: Qilai Shen/Bloomberg

Stocks tied to China Evergrande Group fell after the embattled developer was officially labeled a defaulter for the first time.

The company and Kaisa Group Holdings were downgraded on Thursday to restricted default by Fitch Ratings, which cited missed dollar bond interest payments in Evergrande’s case and failure to repay a $400 million dollar bond in Kaisa’s. The latter will probably reject a rescue package worth up to $2 billion from a group of bondholders advised by Lazard Ltd. as it would only provide a solution for short-term debt, Debtwire reported Thursday, citing unidentified people.

Evergrande shares fell as much as 3.9% in Hong Kong, while shares of its property services company slipped 1%. A gauge of real estate stocks retreated 0.7%, extending losses this year to 29%. Bonds issued by Evergrande and other China high-yield issuers were little changed Friday morning in Hong Kong as activity slows approaching year-end, according to credit traders. Kaisa shares have been suspended since Wednesday.

Key Developments:

  • Evergrande-Related Stocks Drop as Developer Declared in Default
  • Evergrande’s Biggest Broker in Clearing System Cuts Position
  • Moutai Surge Shows Bull Market Returning: What to Watch in China
  • Colour Life Services Applies to Resume Trading on Friday
  • What to Watch in China Credit Markets After Decade’s Worst Rout
  • Watch Evergrande-Related Stocks as Developer Declared in Default
  • Evergrande Restructuring Leaves Bondholders at Mercy of Beijing
  • Evergrande to Be Handled in Market-Oriented Way, PBOC’s Yi Says

Evergrande’s Biggest Broker in Clearing System Cuts Position (11:08 a.m. HK)

Haitong International Securities Co., a Chinese broker that holds the most China Evergrande Group shares in Hong Kong’s clearing system, has reduced its position in the debt-laden developer this week.

The broker’s position in Evergrande was lowered by 225 million shares, according to the CCASS system. As of Thursday close, it reported a position of about 1.88 billion Evergrande shares in the clearing system, or a 14.24% stake in the company, versus 2.11 billion shares last Friday.

Evergrande-Related Stocks Drop as Developer Declared in Default (10:35 a.m. HK)

Most stocks tied to China Evergrande Group fell after the embattled developer was officially labeled a defaulter for the first time.

Evergrande dropped as much as 2.2%, Evergrande Property Services lost 1.1% and Evergrande New Energy Vehicle Group slumped 2.9%. Other Chinese developers listed in Hong Kong declined, with Country Garden Holdings falling as much as 1.5% and Sunac China Holdings retreating 3.7%.

Kaisa Unlikely to Take $2b Deal Offered by Group: Debtwire (10:05 a.m. HK)

Kaisa will probably reject a rescue package worth up to $2 billion from a group of bondholders advised by Lazard Ltd. as it would only provide a solution for short-term debt, Debtwire reported Thursday, citing unidentified people.

The proposed package deals only with Kaisa’s $400 million note due Dec. 7 and perhaps some other bonds due early next year, two of the people told Debtwire. Some large bondholders have decided not to join the group, and at least two real money funds have recently tapped out, the people said.

Moutai Surge Shows Bull Market Returning (8:30 a.m. HK)

The world’s second-largest stock market is showing signs of exuberance for the first time since Chinese policy makers popped a bubble earlier this year.

The FTSE China A50 Index of China’s biggest stocks has climbed more than 6% in a six-day advance, its steepest since February. Its relative-strength index is at a 10-month high, a sign of increasing momentum.

The gains are coinciding with two large defaults in the credit market in Evergrande and Kaisa — and it’s no coincidence. The Communist Party has shifted to easing mode to limit the fallout from a property slowdown, deploying measures to help boost liquidity in the financial system.

Colour Life Services Applies to Resume Trading on Friday (6 a.m. HK)

Trading of shares in Colour Life Services, a real estate management company, and controlling shareholder Fantasia Group Holdings Ltd. was halted last month pending inside information announcements, according to separate filings.

Colour Life Services also said that its property developer shareholder received a notice from TFI Securities and Futures, alleging Fantasia has not discharged its payment obligations of about $96.98 million, according to a regulatory filing.

Evergrande Declared in Default as Huge Restructuring Looms (5:29 p.m. HK)

China Evergrande Group has officially been labeled a defaulter for the first time, the latest milestone in a months-long financial drama that’s likely to culminate in a massive restructuring of the world’s most indebted developer.

Fitch Ratings cut Evergrande to “restricted default” over its failure to make two coupon payments by the end of a grace period on Monday, a move that may trigger cross defaults on the developer’s $19.2 billion of dollar debt.

The downgrade came just minutes after Fitch applied the same default label to Kaisa Group Holdings Ltd., which failed to repay a $400 million dollar bond that matured Tuesday. Together, the two companies account for about 15% of outstanding dollar bonds sold by Chinese developers.

A look at Evergrande’s maturity schedule:

Dollar bonds Coupon due date Grace period ends Amount

(million dollars)

TIANHL 13% due 2022 Nov. 6 Dec. 6 41.93
TIANHL 13.75% due 2023 Nov. 6 Dec. 6 40.56
EVERRE 7.5% due 2023 Dec. 28 Jan. 27 50.43
EVERRE 8.75% due 2025 Dec. 28 Jan. 27 204.77
© 2021 Bloomberg

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