Evergrande shares collapse 14% after trade block is lifted
Shares of indebted Chinese real estate giant Evergrande fell nearly 14% as trading began on the Hong Kong Stock Exchange on Thursday after a two-week suspension.
Shares fell a day after the company said its efforts to sell a real estate services unit to repay its bonds had failed.
Real estate firm Hopson Development, a rival to Evergrande to whom it owes money, was reportedly willing to buy a 51% stake in its real estate services unit earlier.
But Evergrande said on Wednesday that the $ 2.6bn (£ 1.88bn) deal collapsed over disagreements over the terms of the deal. The buyer “had not met the preconditions to make a general offer of shares,” Evergrande said in a statement via the Hong Kong Stock Exchange.
Hopson later said the deal was terminated on October 13 and that he is now exploring other options to protect his interests, AP reported.
This in turn led to the collapse of Evergrande shares to 14% on Thursday. Although Evergrande recovered slightly from losses, it was still down 12.54% at the close.
The deal could have given the company excess cash to pay its interest obligations and perhaps helped pay its dues to Hopson.
The sale of the stakes is crucial for Evergrande since in September and October Evergrande failed to pay interest on two offshore bonds dominated by the US dollar, for which the company currently has a grace period. After that, they will be considered as failing. In short-term relief for investors, Evergrande managed to settle maturities on a national bond last month.
So far, the company has made only one sale of stakes to a Chinese commercial bank to which it owed debts, and said on Wednesday that “there had been no significant progress” in the plans. disposal of other assets to “alleviate the liquidity problems” of the company.
The debt-ridden Chinese giant halted trading in its shares 17 days ago on Oct. 4 for a major announcement as it scrambled for money to meet its interest obligations. Evergrande, the second-largest Chinese automaker, is currently the most indebted developer in the world with debt of $ 300 billion and total obligations amounting to 2% of Chinese GDP.
Fears that the company will default on its debts and approach collapse worry investors, as the effects would not only trigger a financial crisis in China, but spill over into global markets as well.
However, China’s central bank last Friday tried to allay fears and said the “spillover risk” for the financial industry is manageable.