As has been widely reported, China Evergrande Group (HKEX:3333), China’s second-largest property developer, is flashing default signals on its corporate debt. In a corporate statement Evergrande said that the company expects a “significant continuing decline in contract sales in September, thereby resulting in the continuous deterioration of cash collection by the Group which would in turn place tremendous pressure on the Group’s cashflow and liquidity.”
As liquidity concerns rise, Evergrande has “actively engaged in discussions with potential investors in relation to the sales of interests in members of the Group and other assets.”
Evergrande said there is no guarantee that it will be able to meet its financial obligations and if it is unable to meet its guarantee obligation or to repay any debt when due or agree with the relevant creditors on extensions of such debts or alternative agreements, it may lead to cross-default.
As the company scrambles for a solution to its debt crisis, Tether, the largest stablecoin by market cap, issued a pre-emptive statement that it has no exposure to Evergrande’s debt:
“Tether does not hold any commercial paper or other debt or securities issued by Evergrande and has never done so. As we have indicated in our published statements and in our most recent assurance attestation with a reporting date of June 30, 2021, the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers. These ratings refer to S&P short-term credit ratings, where available. Where a rating is unavailable, publicly available industry-standard conversion tables have been used to convert ratings from Moody’s or Fitch to the S&P equivalent.”
The statement by Tether highlights an element of risk for the stablecoin market if these digital assets hold something other than dollar deposits. Recent comments by regulators have indicated a growing likelihood of regulatory scrutiny and new rules to address the burgeoning stablecoin market. As of today, Tether’s market cap is over $68 billion more than double its nearest competitor.
