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Monday, March 20, 2023

Evergrande Shares Plummet By 14% as Trading Resumes in Hong Kong

Evergrande shares plummeted as much as 14% in Hong Kong on Thursday as trading reopened following a 17-day suspension.

The heavily indebted Chinese real estate behemoth has halted trade ahead of an announcement.

According to reports, real estate developer Hopson Development is planning to purchase a 51 percent interest in its property services division.

Evergrande said on Wednesday that the $2.6 billion (£1.88 billion) acquisition had fallen through due to a lack of agreement on the conditions.

Evergrande’s instability has sparked worries that its eventual demise might send shockwaves across global markets.

Investors are concerned about the company’s more than $300 billion in debt. The company’s entire liabilities represent around 2% of China’s GDP.

Evergrande owes money to another Chinese property developer, Hopson Development, and several experts speculated that this possible purchase was a means for Evergrande to pay off its obligation.

Hopson said on Wednesday that Evergrande informed it on October 13 that the transaction had been canceled and that it was now looking into additional avenues to preserve its interest.

Debt Payments Still Sitting In The Unknown

The Evergrande problem began last year, when Beijing, concerned about the real estate sector’s growing debt, enacted new laws to limit the amount owed by large developers.

The company struck a snag back then when it came to making interest payments on its loans. Things have now taken a turn for the worst.

Its stock price has plummeted, and major credit rating agencies have downgraded its debts.

Hui Ka Yan, Evergrande’s chairman and founder, says the company’s strategy is to seek loan extensions and “other alternative agreements” with its creditors.

“There is no assurance that the group will be able to satisfy its financial commitments,” he continued.

The troubled property behemoth is said to have twice skipped interest payments to foreign investors in recent weeks.

According to research company REDD, it was given a three-month extension on another of its loans on Thursday after offering to submit further security.

A Deeper Analysis

Many investors assumed the Evergrande-Hopson agreement was a done deal when it was published in China’s state-owned media. However, after a two-week wait for the news, it came to a halt.

Evergrande’s property services sector is its crown jewel, and some analysts believe the firm didn’t want to sell it without controlling the sale proceeds.

However, the company’s default date is approaching. Saturday marks the conclusion of the company’s one-month grace period for paying interest on its debt to creditors.

Other creators Earlier this month, Sinic and Fantasia both defaulted.

So, the major issue on the minds of investors is: what’s next?

Some believe Beijing may intervene to push Evergrande to sell assets more rapidly as the company restructures, resulting in investors – particularly outside of China – losing money.

This year, the stock has already lost more than 80% of its value.

Property developers in China are thought to owe a total of more than $5 trillion. It’s a massive burden for the world’s second-largest economy, which is already dealing with issues such as the oil crisis and rising raw-material costs.

Cedric Blackwater
Cedric Blackwater
Cedric is a journalist with over a decade of experience reporting on local US news, and touching on many global topics. He is currently the lead writer for Bulletin News.

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