China Evergrande bonds were suspended as prices fell

SHANGHAI, September 6 (Reuters) – Bonds issued by indebted developer China Evergrande Group (3333.HK) fell on Monday after a downgrade led to restrictions on their use as collateral, prompting Chinese stock exchanges stopped trading.

The Shanghai Stock Exchange said in a statement that it had temporarily suspended trading on the 6.98% bond of the Chinese group Evergrande in July 2022 after “abnormal fluctuations”. The stock exchange had also suspended trading on the bond on Friday.

Shanghai exchange data showed bonds slipped more than 25% to a low of 40.18 yuan after Monday afternoon’s resumption. 5.9% of the company, which was suspended in May 2023, fell more than 35% after the resumption of negotiations.

The fall in bond prices comes after a downgrade of the ratings erased the value of the bonds for use in the compromised replacement trade.

The rules governing committed replacements require that bonds issued after April 7, 2017 and pledged as collateral be considered AAA, while issuers must have AA or higher credit ratings. Bonds issued before that date, including the July 2022 Evergrande bond, only need an AA rating or higher.

China Chengxin International Credit Rating Co. (CCXI) on Thursday downgraded Evergrande and its land bonds to AAA AA and placed the company and its bonds on a watch list for subsequent downgrades.

On Friday, China Securities Depository and Clearing Co. (CSDC) reduced the “conversion ratio” of the July 2022 bond to zero, effective September 7th. Other Evergrande bonds were not included in the CSDC conversion ratio table on Friday, as they no longer did. qualified for inclusion.

The conversion ratio determines the leverage limits for repo financing given a specific bond pledged as collateral. CSDC is owned by the Shanghai and Shenzhen stock exchanges.

A director of a local broker said the reduction in the conversion ratio was a “gray rhino,” a very obvious but ignored threat. “I was forced to pass.”

Evergrande declined to comment. But in a statement to the Shanghai Stock Exchange on Monday, it acknowledged the impact of downgrading the rating on the use of bonds as a pledged repo guarantee. He said the bonds had previously been considered suitable only for qualified institutional investors and that the downgrade had no impact on investor suitability.

Concerns surrounding Evergrande, which has struggled to raise funds to pay lenders and suppliers, have become more general concerns about whether a debt crisis could trigger shockwaves through the Chinese banking system. Read more

On Friday, an index of high-yielding Chinese dollar issuers (.MERACYC) fell to its lowest level since the spring of 2020.

Reports by Andrew Galbraith; Additional reports from Clare Jim in Hong Kong; Edited by Shri Navaratnam and Emelia Sithole-Matarise

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