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BEIJING: Two major Chinese property firms have defaulted on $1.6 billion worth of bonds to overseas creditors, Fitch Ratings agency said Thursday, as contagion spreads within the country’s debt-ridden real estate sector.

The Chinese government sparked a crisis within the property industry when it launched a drive last year to curb excessive debt among real estate firms as well as rampant consumer speculation.

Companies that had accrued huge debt to expand suddenly found the taps turned off and began struggling to complete projects, pay contractors and meet both domestic and foreign repayments.

Real estate behemoth Evergrande has been the highest profile firm embroiled in the crisis, struggling for months to raise capital to pay off $300 billion in debt. On Thursday, Fitch confirmed the company had defaulted for the first time on more than $1.2 billion worth of bond debt, as it downgraded the firm’s status to a restricted default rating.

Fitch also confirmed Kaisa, a smaller property company but one of China’s most indebted, had also defaulted on $400 million of bonds. Evergrande’s troubles first surfaced in the summer when it made clear how heavily leveraged the firm had become.

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