Debt-crippled Chinese property giant Evergande has defaulted for the first time, Fitch Ratings agency said on December 9, as authorities scrambled to avoid contagion throughout the economy.
Beijing sparked a crisis within the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.
Companies that had accrued huge debt to expand suddenly found the taps turned off and began struggling to complete projects, pay contractors and meet both domestic and foreign repayments.
Evergrande had been the highest-profile firm to become embroiled in the crisis, struggling for months to raise capital to pay off $300 billion in debt.
On December 9, Fitch confirmed the company had defaulted for the first time on more than $1.2 billion worth of bond debt, as it downgraded the firm’s status to a restricted default rating.
Fitch also declared Kaisa, a smaller property company but one of China’s most indebted, had defaulted on $400 million of bonds.
More than 10 Chinese real estate firms have now defaulted in the second half of this year.
China’s property sector is one of the main drivers of the nation’s economy and keys to the wealth of the booming middle class.
Intent on maintaining “social stability”, Beijing has been working to avoid a massive fallout from the collapse of Evergrande.
But it has eschewed a government bailout. Instead, a “risk management committee” stacked with officials from state entities was last week sent in to clean up the current mess.
People’s Bank of China governor Yi Gang on December 9 said Beijing planned to handle Evergrande’s future in a market-oriented way.
“The rights and interests of creditors and shareholders will be fully respected in accordance to their legal seniority,” Chinese state media quoted Yi as saying.
But even with those assurances, investors remain in the dark about what the future holds and what Beijing’s overall plan is.