Evergrande debt crisis wreaks havoc on Hong Kong stock market

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Shares of Evergrande Group fell 10% in Hong Kong on Monday, hitting just 2.28 Hong Kong dollars ($ 0.29) per share. The stock has lost 84% so far this year, plunging below its 2009 IPO price of 3.5 Hong Kong dollars ($ 0.45).

The Hang Seng Index (HSI) Monday fell 3.3%, suffering its worst drop in nearly two months, as Chinese banks, insurers and other real estate companies came under fire.

Evergrande faces a few critical deadlines this week. He was supposed to repay interest on some bank loans on Monday, according to Bloomberg. The outlet recently reported that Chinese authorities have told major banks that they will not receive these payments.

Evergrande did not immediately respond to a request from CNN Business to comment on these payments.

And interest payments totaling more than $ 100 million are due later this week on two of the company’s bonds, according to data provider Refinitiv.

But it is not known how much – if any – of these debts Evergrande will be able to meet. The group is the most indebted developer in China, with more than $ 300 billion in liabilities. In recent weeks, he has warned investors of cash flow issues, saying he could default if he is unable to raise funds quickly.

5 things to know about Evergrande, the Chinese business empire on the brink

Evergrande’s debt burden is so heavy as analysts have warned the risks could spread throughout China. The company owns around 6.5% of the total debt held by the Chinese real estate sector, according to an estimate by UBS.

The Hang Seng real estate index, which tracks the city’s top listed developers, fell 6.7%, reaching its lowest level since May 2016. The cold may have been exacerbated by a Reuters report late Friday afternoon , who quoted unnamed sources as saying that Beijing had called on the powerful Hong Kong real estate tycoons to invest resources and influence to support Beijing’s interests.

Hong Kong developers Development of the New World (NDVLY) and Chinese Estates Holdings, well known as Evergrande’s longtime allies who have often backed the company by buying its bonds or parts of its stakes, fell 12.3% and 8.5%, respectively. Another Chinese property developer Country Garden lost more than 6%.

The sale spread to shares of Chinese banks and insurance companies. Ping An Insurance – the country’s largest insurer and one of its biggest real estate investors – fell nearly 6% on Monday to its lowest level since 2017. The heavy losses occurred even though Ping An said on Friday that the company had “no exposure” to Evergrande, while the risks to its other real estate investments were “controllable”, according to Chinese state media.

Mainland China’s stock and bond markets were closed on Monday for a public holiday and will reopen on Wednesday.

There is another big risk of brewing in China

Goldman Sachs analysts have warned of “growing risks” in the Chinese real estate market.

“Concerns about Evergrande are growing and signs of funding difficulties are spreading to other developers,” they said in a research report released Sunday night. The Chinese government must “carefully manage” the potential default or restructuring of Evergrande, while offering a clear message to help “build confidence and stop the ripple effect,” they said.

Evergrande has around 200,000 employees, grossed more than $ 110 billion in sales last year and has more than 1,300 developments, according to the company. Its huge liabilities are largely held by financial institutions, retail investors, home buyers and suppliers in the construction, materials and design industries.

The problems of the heavily indebted real estate giant have been brewing for a year. In August 2020, Beijing began to contain excessive borrowing in the real estate sector in an attempt to keep the housing market from overheating and curb debt growth.

Evergrade’s liquidity crisis has intensified in recent weeks, causing the company’s stocks and bonds to fall further.

At the start of last week, Chinese media Caixin reported that several hundred people who had invested in an Evergrande wealth management product surrounded the company’s headquarters in Shenzhen, demanding their money back.

They also interviewed a senior executive at Evergrande, who they said bought back his investment several months ago, suggesting he knew the extent of the company’s problems before telling investors.

The company warned on Friday that six of its executives could face “severe penalties” for prematurely withdrawing the wealth management product. On Saturday, the company announced that it would begin repaying its wealth management investors with real estate.

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