On Thursday, the credit rating agency downgraded the company and its subsidiaries to “limited default”, which means that the company has failed to meet its financial obligations.
Fitch said the downgrade reflects the company’s inability to pay interest earlier this week on two dollar-denominated bonds. The payments were due a month ago, and the deadlines expired on Monday.
Fitch noted that Evergrande did not make any announcements about the payments, nor did they respond to inquiries from the rating agency. “We therefore assume they were not paid,” Fitch said.
Evergrande did not immediately respond to a request for comment from CNN Business. However, the company had warned that this could happen. In a stock exchange file last Friday, it said that it may not have enough funds to meet its financial obligations. At the time, it said it planned to “actively engage” with offshore creditors on a restructuring plan.
Fears of default led to shares in Evergrande plunged 20% on Monday. So far this year, the stock has lost 87%.
The company had been struggling for months to raise money to repay lenders, and Xu has even sold out personal assets to support the economy. It previously seemed to avoid defaulting on some of its offshore bonds by paying overdue interest before their repayment period expired. Now, however, that row is over.
Another credit rating agency, S&P, said earlier this week that “default looks inevitable for Evergrande” with repayments of $ 3.5 billion on US dollar bonds maturing in the coming months.
“The issuer [Evergrande] does not appear to be making much progress in resuming construction, given the difficulty of obtaining new financing, “S&P Global analysts wrote in a note published Monday.
Chinese authorities have tried to limit the fallout. Last Friday, the local government in Guangdong province, where Evergrande is based, said it would send a working group to Evergrande to oversee risk management, strengthen internal control and maintain normal operations, at the request of the company.
“The rights of Evergrande shareholders and creditors will be fully respected according to their legal seniority,” PBOC Governor Yi Gang said Thursday in a video speech to a Hong Kong forum, according to the central bank.