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China Evergrande Continues Fall as S&P Warns of Likely Default By


© Reuters

By Gina Lee – China Evergrande Group (HK:) shares continued their downward trend, after S&P Global (NYSE:) Ratings warned that the developer is on the brink of default.

Shares slid 3.51% to HK$2.20 ($0.28) by 12:35 AM ET (4:35 AM GMT), after dropping as much as 7% during the previous day’s session.

“We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,” dated Sep. 20.

“China Evergrande failing alone would unlikely result in such a scenario.”

The focus is now on whether the company will be able to pay an $83.5 million interest payment for its March 2022 bond due on Thursday. On Sep. 29, a second payment of $47.5 million for the March 2024 notes will be due.

Chinese authorities have previously advised major banks not to expect the repayment of interest due on this week’s bank loans. Some investors believe that government intervention will be necessary as the crisis worsens.

“While we think the government does not want to be seen as engineering a bailout, we expect it to step in to conduct a managed restructuring of the firm’s debt to prevent disorderly debt recovery efforts, reduce systemic risk, and contain economic disruption,” Oxford Economics lead economist Tommy Wu and head of Asia economics Louis Kuijs said in a note.

The note stated that financial conditions in the wider property sector are likely to remain tight for some time. There may be some financial sector stress.

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