HOME BUILDER CHINA EVERGRANDE HAS DEFAULTED ON ITS DEBTS, FITCH SAYS

After months of struggling to pay down its massive debts, China Evergrande Group has defaulted, a ratings agency said Thursday.

Fitch Ratings said in a statement that it had placed the embattled home builder and two of its subsidiaries, Hengda Real Estate Group and Tianji Holding, into “restricted default.” The designation means it has missed a debt payment but hasn’t entered into bankruptcy or other processes that would suspend operations.

The default was largely expected by analysts and investors, probably blunting its effect on global markets.

“Investors aren’t reacting much because this has been baked in for a long time,” said Nick Lardy, senior fellow with the Peterson Institute for International Economics. “It’s a slow-motion car crash, and I think we’ll see more coming because they have a lot of debt that’s due over the next year.”

Another Chinese developer, Kaisa Group Holdings, also was given a restricted default rating Thursday. It failed to repay senior notes totaling roughly $400 million that were due Tuesday, Fitch said in a statement. Its shares were suspended from the Hong Kong Stock Exchange on Wednesday, according to Reuters.

Evergrande, founded in 1996, rode its way to the top of China’s housing boom while building up a mountain of debt. Its founder, Xu Jiayin, brief ly became China’s wealthiest business executive in 2017, and Evergrande the world’s most valuable real estate company in 2018. As of June 30, he and his wife, Ding Yumei, together owned 77 percent of the shares, according to a September investor note from the ratings agency Moody’s.

Fitch says it’s one of China’s three largest developers by contracted sales. The company says it has more than 200,000 employees and supports about 3.8 million jobs. Its assets are worth approximately $360.6 billion.

But in recent months, the company has been staggering under the weight of $300 billion in liabilities. In September, Moody’s predicted Evergrande would be unable to generate enough cash flow to meet its debt and operating needs over the next 12 months. On Friday, Evergrande said that it had received a demand to make good on a $260 million obligation but that it couldn’t guarantee it would be able to keep up with its debts.

Fitch said Thursday that Evergrande provided no indication of how it will settle the debts or whether it intends to do so at all. It also said the company did not respond to its request for confirmation of payment after the 30-day grace period on the coupon payments lapsed Dec. 6.

“We are therefore assuming they were not paid,” Fitch said.

The Chinese developer’s precarious finances had raised alarms about a worst-case scenario, one in which its collapse could snowball across the global financial sector as Lehman Brothers did in 2008. Those fears have been tempered, partly because of Beijing’s signals that it will prevent wider fallout.

The bigger risk for China is that people will lose confidence in the housing market if paid-for houses aren’t delivered.

Evergrande has fueled much of its expansion by preselling apartments, leaving it with hundreds of thousands of unfinished projects that it will need to complete or offload. The company has been scrambling to sell those assets to free up cash.

“The government is very concerned about whether the millions of people who have bought houses from Evergrande will get their houses,” Lardy said. “If that doesn’t happen, confidence in the property sector will erode.”