China Evergrande’s Rating Cut Deeper Into Junk Territory

China Evergrande Group’s credit rating has been cut one notch to B by Fitch Ratings.

The credit risk assessor also downgraded the borrower’s subsidiaries Hengda Real Estate Group Co. and Tianji Holding Ltd. The move reflects “ongoing pressure for Evergrande to downsize its business and reduce total debt,” Fitch analysts wrote in a Tuesday report. The ratings outlook is negative.

China Evergrande has faced renewed concern over its financial health in recent weeks as investor unease grows about the nation’s debt-laden borrowers. Several large Chinese banks are restricting credit to Evergrande, Bloomberg News reported earlier Tuesday, citing people familiar with the matter.

That news spurred a further selloff in the borrower’s dollar bonds that deepened following the downgrade. Evergrande’s 8.75% note due in 2025 was down 2.7 cents on the dollar at 70.6 cents, Bloomberg-compiled prices show.

With about $20.7 billion of offshore bonds, Evergrande stands alongside China Huarong Asset Management Co. as one of the most prolific Chinese issuers of dollar debt. Like Huarong, it’s also considered a litmus test of the government’s willingness to support embattled borrowers as policy makers try to balance sometimes competing goals of maintaining financial stability and reducing moral hazard.

©2021 Bloomberg L.P.

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