Chinese property giant Evergrande’s shares plunged on October 21 after resuming trading in Hong Kong, with the failure of a unit sale deal deepening fears the indebted firm will collapse and send shockwaves through the world’s second-largest economy.
Evergrande had suspended trading on October 4 pending an announcement on a “major transaction” as it struggled with some $300 billion of debt – with investors worried about the potential fallout from its predicament.
On October 21, its shares dropped 10.5 per cent at the open, and were later trading about seven per cent down.
A deal worth HK$20.04 billion (US$2.58 billion) to sell a 50.1 per cent stake in its property services arm had fallen through, it said in a statement on October 20, when it announced it would resume trading.
The buyer in talks with Evergrande was reportedly a unit under Hong Kong real estate firm Hopson Development Holdings.
Hopson shares rose five per cent on the morning of October 21, as Evergrande Property Services tumbled 4.5 per cent.
Evergrande said it would continue to implement measures to ease its liquidity issues, cautioning that “there is no guarantee that the group will be able to meet its financial obligations”.
The Shenzhen-based company has missed several payments on dollar-denominated bonds.
A 30-day grace period on an offshore note is up on October 23.
Fears that Evergrande could collapse and send shockwaves through the Chinese economy has rattled buyers and markets – though Beijing has insisted any fallout would be containable.
Data this week showed China’s economic growth slowed more than expected in the third quarter as the crackdown on the property sector and an energy crisis began to bite.
In a sign of the ongoing weakness, home sales by value slumped 16.9 per cent year-on-year last month, following a 19.7 per cent fall in August, AFP calculations based on official data showed.
China’s new-home prices also fell for the first time in six years last month.
Several domestic property rivals have in recent weeks already defaulted on debts and have seen their ratings downgraded.
Hong Kong-listed Sinic Holdings became the latest to miss a payment, while mid-sized competitor Fantasia also failed to meet obligations in recent weeks.
Evergrande first listed in Hong Kong in 2009, raising HK$70.5 billion in its initial public offering (IPO) – making it China’s largest private real estate company and founder Xu Jiayin the mainland’s richest man at the time.
In an expansion spree, Xu – also known as Hui Ka Yan in Cantonese – bought the then-embattled Guangzhou football team in 2010, renaming it Guangzhou Evergrande and pouring money into world-class players and coaches.
The group diversified into various sectors, including bottled water and electric vehicles.
But Evergrande started to falter under the new “three red lines” imposed on developers in a state crackdown in August 2020 – forcing the group to offload properties at increasingly steep discounts.