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As Evergrande scrambles to raise money to pay off debt, regulators warn of broader risks to China’s financial system.
Evergrande shares plunged 19% to their lowest level in more than 11 years on Monday, extending losses as investors frown on its trading outlook with a looming maturity for payment obligations this week.
As of noon, the stock had hit 2.06 Hong Kong dollars ($ 0.26), the lowest level since May 2010.
The company’s property management unit fell more than 12%, while its electric car unit fell 8%. Movie streaming company Hengten Net, majority owned by Evergrande, fell 14%.
Evergrande has struggled to raise funds to pay off its many lenders, suppliers and investors, with regulators warning that its $ 305 billion in liabilities could trigger greater risks to the country’s financial system if not stabilized.
One of Evergrande’s main lenders has set aside provisions for losses on part of its loans to the struggling developer, while some creditors plan to give it more time to repay, four bank executives told the agency Reuters press release.
The developer said on Sunday that it had started reimbursing investors for its wealth management products with real estate.
Policymakers are telling Evergrande’s major lenders to expand interest payments or rollover loans, and market watchers are largely of the view that a direct government bailout is unlikely.
Evergrande is due $ 83.5 million in interest on September 23 for its March 2022 bond. It has another $ 47.5 million interest payment due on September 29 for the March 2024 notes. Both bonds would default if Evergrande does not pay the interest within 30 days of the scheduled payment dates.
In any default scenario, Evergrande will have to restructure bonds, but analysts expect investors to see a low recovery rate. Trading in the company’s bonds underscored how much investor expectations for its outlook have deteriorated this year.
The March 2022 8.25% dollar bond traded at 29.156 on Monday afternoon, yielding more than 500%, down from around 13.7% at the start of the year. The 9.5% bond of March 2024 was at 26.4, with a yield above 80%, compared to 14.6% at the start of 2021.
Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent company and a special purpose vehicle, the paybacks in a potential restructuring could differ between the two sets of bonds, and all potential restructuring process could be prolonged.
‘Paradigm shift’
The company’s woes also put pressure on the wider real estate sector as well as the yuan, which fell to its lowest level in three weeks at 6.4831 per dollar in offshore trading.
Faced with uncertainty over the economic fallout President Xi Jinping is willing to accept as he pushes forward campaigns of market turmoil to achieve “common prosperity” and curb over-leveraged businesses, many investors are choosing to sell off first and ask questions later.
The Hang Seng real estate index fell 6.6%, the highest since May 2020. Henderson Land fell 12%. Sun Hung Kai Properties Ltd fell 9.1%, poised for its biggest loss since 2016. CK Asset Holdings Ltd fell 7.9%.
Chinese officials have told developers in Hong Kong that Beijing is no longer willing to tolerate what it calls monopoly behavior, Reuters reported on Friday. Officials have not established a roadmap or deadline, the report said, citing unidentified developers.
“This is a paradigm shift,” said Hao Hong, chief strategist at Bocom International, referring to the Reuters report. “People have to watch closely. “
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