Chinese property developers China Evergrande and Kaisa both had their credit ratings downgraded to restricted default by Fitch Ratings on Thursday, adding to a series of splurges for struggling developers in China that could have repercussions in China and beyond given its central position in economies. Asian and global.

Evergrande, second Chinese developer, has racked up some $300bn (£227bn) in bonds and liabilities, leading to lengthy speculation that led to Thursday’s downgrade.

Kaisa had already defaulted in 2015 and was one of the largest foreign debt holders with some $10.9 billion of dollar bonds outstanding.

Earlier in the week, Fitch also downgraded Aoyuan, another Chinese developer, to a C rating based on persistent debt. Neither he nor Xinyuan (downgraded to CC in October) have yet approached the restricted default status of Evergrande, Kaisa and several smaller developers.

“The downward revisions reflect non-payment of coupons due November 6, 2021 for (Evergrande’s subsidiary) $645 million 13% Bonds and $590 million 13.75% Bonds of Tianji after the grace period expires on Dec. 6,” Fitch said of Evergrande.

“Kaisa has not repaid its $400 million senior bond due on December 7, 2021. There is no grace period for the repayment of the bonds,” Fitch added in a separate note.

Troubles in the sector

Although a number of smaller Chinese developers – including Fantasia, Modern Land, China Properties Group and Sinic – have defaulted this year, Evergrande and Kaisa are quite significant.

Evergrande has seen a series of nervous developments, near misses with delays and other areas of concern. But Fantasia, which generates less than 5% of revenue like Evergrande, assured investors it had no cash or liquidity problems shortly before it defaulted.

Chinese dollar bonds, a common source of funding for developers, rose sharply in price amid industry volatility.

Uncertain implications

China’s booming real estate market and its rapid accumulation of debt could have a profound impact on China’s economy, given that some estimates indicate that real estate accounts for 30% of the national economy.

In most industrialized countries, default can cause bondholders to pressure a company to initiate bankruptcy proceedings or a hardship sale of some of its assets. But China has an authoritarian communist central government that has bailed out its industries and their leaders in the past, but not without controversy..

Whether or not Beijing enters the fray in the cases of Evergrande and its subsidiaries or that of Kaisa remains to be seen. People’s Bank of China Governor Yi Gang spoke via video at a seminar in Hong Kong, and his remarks did not appear to herald a bailout.

“The short-term risks of individual real estate companies will not affect the normal medium and long-term market financing function,” Yi said.

He added: “Evergrande’s risk is a market event that will be properly managed in accordance with market principles and law.”

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