With two debt repayment deadlines near, S&P Global Ratings mentioned that it will not anticipate Beijing to assist the China Evergrande Group (3333. HK) directly.
The rating agency commented that it anticipates Beijing would only be forced to intervene if a widespread contagion leads many large developers to collapse and create systemic concerns to the economy.
Evergrande’s stock has plummeted in recent days as Chinese authorities warned that the company’s $305 billion debt might result in widespread losses to China’s financial system if they are not in a stabilized measure.
Fears of a spillover effect from Evergrande into the larger Chinese economy and abroad drove down Hong Kong’s Hang Seng index by more than 3% on Monday. The selling spree continued across the world.
Evergrande is currently a leading indebted developer, owing over $300 billion. Beginning Thursday, it will make a series of interest payments on its debts. According to S&P, a “default” on such payments is “likely.”
Crash in Shares
Evergrande shares in Hong Kong plummeted nearly 4% in early Tuesday trade, marking the company’s eighth straight session of losses, albeit considerably less than the almost 10% drop on Monday.
On Tuesday, Evergrande’s chairman attempted to calm markets by stating that it will uphold its obligations to property purchasers, investors, and financial institutes.
“Not too big to fall”
S&P analysts had compared Evergrande’s woes to the example of Huarong, the Chinese bad debt management that triggered a market meltdown earlier this year when it failed to disclose results on time and saw its U.S. dollar-denominated bonds plummet.
S&P mentioned that they don’t anticipate the government to intervene unless systemic stability is in jeopardy. A bailout by the government would jeopardize the drive to improve financial discipline in the real estate industry.