China: Temporarily suspending bond trading of real estate giants China Evergrande Group
China’s stock exchanges had to suspend trading in bonds of China’s second-largest real estate group, China Evergrande Group.
Bonds issued by China Evergrande Group tumbled on September 6 after a credit rating downgrade led to restrictions on their use as collateral. This caused China’s stock exchanges to suspend trading of these bonds. China Evergrande Group is the second largest real estate group in China.
The Shanghai Stock Exchange said it had suspended trading in China Evergrande Group’s corporate bonds with maturity until July 2022 and yielding 6.98% after “extraordinary fluctuations”. The suspension was implemented from the end of last week (September 3).
Data showed that Evergrande Group’s bond price fell more than 25%, to as low as 40.18 yuan per bond after resuming trading on the afternoon of September 6. Evergrande Group bonds maturing in May 2023 with a yield of 5.9% on the Shenzhen Stock Exchange also suspended trading, having fallen more than 35% after trading resumed.
China’s Chengxin International Credit Rating Company (CCXI) downgraded Evergrande Group’s credit rating and its domestic bonds from AAA to AA on September 2, and placed Evergrande at the same time. Group and their bonds on the watch list for further downgrade.
On September 3, China Securities Depository and Settlement Administration (CSDC) reduced the “conversion rate” of Evergrande bonds for July 2022 to zero, effective September 7. The other bonds of this corporation are also not included in CSDC’s conversion rate as of September 3 because they are no longer eligible for inclusion.
Evergrande declined to comment on the matter, but in a statement on the Shanghai Stock Exchange on September 6, the group acknowledged the impact of the credit rating downgrade on the use of bonds. theirs as collateral in the repo transaction.
A repo transaction is a transaction in which one party sells and transfers ownership of a financial asset to another party, and commits to buy back and take back ownership of that financial asset after a specified period of time. with a specified price.
Worries about Evergrande, which is struggling to raise capital to pay lenders and suppliers, have been heightened by speculation that a debt crisis for the real estate giant could shocks to China’s banking system.
Evergrande is currently “carrying on its back” total liabilities of up to 301 billion USD by the end of 2020. In fact, Evergrande has faced a series of concerns about illiquidity as well as the possibility of default since May. March 2020.
The situation became more tense when the COVID-19 pandemic broke out in China, causing construction works to be delayed and delayed. Skepticism about Evergrande’s fate has increased after rating agencies simultaneously lowered the credit rating of this corporation.