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16 Sept 2021
China Evergrande Suspending Onshore Bond Trading
The Index Today
China Evergrande’s Hengda Real Estate unit has been facing liquidity crisis and has announced to suspend trading of onshore corporate bonds.
The property developer has liabilities of over $300 billion and will begin to freeze bond trading due to stock market volatility. Evergrande is trying to secure funds as it tries to avoid a meltdown that will end in either a government bailout or a collapse.
According to market experts, the freezing of bonds reflect the possibility of defaults and restructuring. China Chengxin International, a rating agency in China notified the real estate company that its bonds had been downgraded to A from AA.
Hengda Real Estate will be suspending its onshore corporate bonds for one day and will resume trade on the 17th of this month. The bonds are to be traded through negotiated transactions only, a process which is usually seen before a default. The main aim of the new trading strategy is to control volatility and limit participation.
James Shi, debt analyst at Credit Analytics said, “The market is pretty certain Evergrande will default. A very low recovery ratio would be due partly to deep losses at many Evergrande’s non-core businesses, making them hard to liquidate.”
According to a report by CreditSights, the probability of liquidation remains low if the company defaults. Experts are worried that the debt crisis o Evergrande may affect other high yield issuers.