The group depress liabilities of more than 300 billion dollars.
(Photo: Reuters)
Dusseldorf Shares in the heavily indebted Chinese real estate company Evergrande came under pressure again on Thursday: The shares in Hong Kong fell by 12.5 percent. At times they were even 16.6 percent in the red after being suspended from trading for two weeks. Since the beginning of the year, the shares have lost more than 80 percent of their value.
The trigger for the latest price losses: Evergrande’s plans for a multi-billion dollar sale of a majority stake in its property management division Evergrande Property Services to smaller rival Hopson Development have failed.
The heavily indebted real estate company urgently needs to raise money in order to be able to pay banks, suppliers and bondholders on time. Evergrande is so big that some experts fear a “risk of contagion” for China’s economy and beyond if it goes bankrupt.
Evergrande Property Services stocks, which were also suspended from trading for two weeks, fell eight percent on Thursday. Hopson’s shares, on the other hand, gained more than seven percent.
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Evergrande, Evergrande Properties and Hopson shares were suspended from trading in early October. Evergrande said at the time that it was expecting an insider-relevant transaction. According to Chinese media reports, Evergrande hoped to sell 50.1 percent of its services division to Hopson for the equivalent of around 2.6 billion dollars.
Why the deal fell through is unclear. Evergrande said Wednesday evening that it had reason to believe that Hopson did not meet the requirements to make an offer. Hopson announced, however, that it was ready to take over, but had received a notice from Evergrande on October 13 that the transaction had been abandoned.
Evergrande needs to raise around $ 120 million in interest payments by Saturday
Evergrande is sitting on a mountain of debt equivalent to more than $ 300 billion. There is also speculation about further off-balance sheet liabilities.
The company has already missed several deadlines for interest payments due to its bondholders. A 30-day grace period ends this Saturday for interest payments of $ 83.5 million for a dollar bond and 232 million yuan ($ 36 million) for a local bond due on September 23.
Participants in the financial market are expecting a default, especially since Evergrande said in a further announcement to the stock exchange that, apart from the sale of a stake in Shengjing Bank for $ 1.5 billion, there was no progress in the sale of assets.
The real estate company only promised steps to address its liquidity problems. Evergrande will make the greatest efforts to obtain renewal or extension of loans from the creditors. However, given the difficulties, there is no guarantee that Evergrande will be able to meet its payment obligations.
According to information from the Reuters news agency, Evergrande has found a solution for at least one bond that matured on October 3 and whose grace period is still running. The company received a “more than three-month” extension of the term. The $ 260 million bond was issued by the Jumbo Fortune Enterprise joint venture and guaranteed by Evergrande. Evergrande has agreed to provide additional collateral, reported Reuters, citing the financial services provider REDD.
According to an analysis by asset management company Nikko Asset Management, Evergrande owes around $ 90 billion to its creditors in the credit market, including trust companies, banks and bond owners. However, the largest group of creditors consists of hundreds of suppliers as well as property buyers who have made down payments.
Experts assume that the real estate projects will, if necessary, be continued with state support, for example from local governments in Guangdong or Shenzhen. Evergrande shareholders and bondholders, on the other hand, do not enjoy any political priority.
There is growing concern about a crisis in the real estate sector
Given the size of the debt, there are growing concerns that a collapse of Evergrande will affect more real estate developers and lead to a crisis in the vital real estate sector. Most recently, this contributed almost a quarter to the economic output of the world’s second largest economy.
At the weekend, the head of the Chinese central bank, Yi Gang, admitted that the real estate developer’s problems are “cause for concern”. But “overall we can contain the risk of Evergrande”, he assured at a virtual meeting of the so-called Group of 30, an association of leading representatives of international financial organizations.
With material from Reuters
More: Evergrande before the collapse: three scenarios, how things will go with the real estate developer.