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Hengda seeks trading halt over ratings downgrade
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CHINA Evergrande Group’s main unit, Hengda Real Estate Group Co Ltd, yesterday applied to suspend trading of its onshore corporate bonds following a downgrade, as the country’s No. 2 property developer wrestles with a liquidity crisis.
The application follows repeated trading freezes of the bonds in recent days by the Shanghai and Shenzhen stock exchanges due to volatile trade. With total liabilities of more than US$300 billion, Evergrande is scrambling to raise funds as it teeters between a meltdown with far-reaching impacts, a managed collapse or a government bailout.
Suspension of trade in Hengda’s onshore corporate bonds indicates an increasing likelihood of defaults and restructuring, market participants said.
Hengda received notice on Wednesday from rating agency China Chengxin International that the bonds’ ratings had been downgraded to A from AA, and that both the bonds’ ratings and its issuer rating were put on a watch list for further downgrades, it said in a stock exchange filing.
Hengda applied to suspend trade of its onshore corporate bonds for one day, it said. On the resumption of trade today, its Shanghai and Shenzhen exchange-traded bonds will only be traded through negotiated transactions.
The company’s January 2023 Shenzhen-traded bond was last quoted at 24.99 yuan (US$3.87) on Wednesday, and its Shanghai-traded May 2023 bond traded at 30 yuan.
Share prices of Hengda Real Estate Group fell 6.41 percent to close at HK$2.63 after hitting an intraday low of HK$2.52.
Evergrande’s two other listed subsidiaries, involved in new-energy vehicles and property management businesses, dived 11.31 percent to HK$3.53 and 3.53 percent to HK$4.10.
James Shi, a distressed debt analyst at credit analytics provider Reorg, said that an Evergrande default has been largely priced into the market, and that a recovery ratio will likely be low in the case of an expected restructuring.
“The market is pretty certain Evergrande will default,” Shi said. A very low recovery ratio would be due partly to deep losses at many of Evergrande’s non-core businesses, making them hard to liquidate, he said.
A report by CreditSights this week said the probability of liquidation was low if Evergrande defaults.
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