Despite barely making several overdue coupon payments literally at the eleventh hour, Evergrande will still likely default on its surmounting pile of debt.
According to a report published by S&P Global Ratings on Thursday, heavily indebted Chinese property developer Evergrande will still eventually succumb to bankruptcy, because it has lost its main business— which is selling property. The company created a business model where it sold property to consumers ahead of completion, and then allocated the funds towards future projects. However, that model is no longer sustainable.
“The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely,” the S&P analysts said in the report. Although the company has thus far been able to sell some assets and narrowly make payments on time, its extensive pile of debt will catch up with it in due time.
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The analysts pointed out that Evergrande’s biggest liquidity test will come when the real estate developer’s $3.5 billion coupon payment on US dollar-denominated bonds comes due in March and April of 2022. “We still believe an Evergrande default is highly likely,” S&P concluded.
Information for this briefing was found via S&P Global. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
