Evergrande: the indebted Chinese promoter collapses for its return to the stock market

Published on : 10/21/2021 – 10:04

The fall continues for Evergrande. The ultra-indebted Chinese real estate group, whose potential bankruptcy could shake the economy of the Asian country, saw its share collapse on Thursday, October 21, when it returned to the stock market in Hong Kong.

This promoter, one of the biggest in China, which owns the Guangzhou FC football club until recently trained by the Italian world champion Fabio Cannavaro, is dragging a slate of around 260 billion euros.

The Evergrande share price fell 10.5% on Thursday when it first traded on the Hong Kong Stock Exchange, a sign of the low confidence investors still have in the dying group.

This plunge comes shortly after the company announced the failure to sell 50.1% of the capital of one of its subsidiaries to another Chinese promoter, Hopson. The case could have brought in 2.2 billion euros.

Evergrande suspended its listing in Hong Kong on October 4 after several missed loan repayments.

The group had announced Wednesday evening that the stock exchanges on its action would resume this Thursday, while warning that it could “not be able to honor its financial obligations”.

Dozens of injured owners, not having received delivery of their apartment, as well as unpaid suppliers, demonstrated in September in front of the group’s headquarters in Shenzhen (southern China).

>> READ – Evergrande: the real estate conglomerate symbol of the Chinese “too big to fail”

“Problems”

Evergrande “will continue to implement measures to mitigate [ses] liquidity problems, “the property developer assured Wednesday in an attempt to reassure investors.

Despite a storm in September in the financial markets, worried about the repercussions of a potential bankruptcy of the group, Beijing has still not made it clear whether or not it will come to the rescue of the company.

Evergrande, which has embarked on all-out diversification in recent years, has struggled for several weeks to honor its interest payments and apartment deliveries.

In addition to real estate, the group, sure of its financial strength, had invested in tourism, digital, insurance, health or even electric cars, which partly explains its abysmal debt.

However, Evergrande’s poor health is only one of the symptoms of a Chinese real estate sector which is in general seizure.

New housing prices are thus down for the first time in six years, in a context of mistrust of buyers facing the risk of bankruptcy of several developers.

In 70 large and medium-sized cities in China, prices were trending downward over one year in September, the National Bureau of Statistics (BNS) said on Wednesday, without giving a precise percentage.

According to calculations by the Bloomberg agency, prices have fallen on average by almost 1%.

Deadline Saturday

A small revolution, while the real estate sector has long been one of the engines of the Chinese economy with the construction of millions of homes. A frenzy spurred by the need of most Chinese for homeownership – an almost obligatory step before marriage.

Faced with the swelling of debt in real estate, regulators imposed last year on the sector “three red lines”, prudential ratios which aim to reduce recourse to borrowing by developers.

The most vulnerable among them have struggled to keep their activities afloat since then.

At the end of September, Evergrande was thus unable to honor loan repayments, totaling 131 million dollars (113 million euros).

And this month, the group could not honor a third loan in the amount of 148 million dollars (127 million euros).

However, Evergrande has a 30-day grace period for each loan. The deadline for the first payment is October 23, this Saturday.

Beijing, however, tried to reassure last week on the health of the group.

The Chinese central bank considered that the situation of Evergrande was certainly delicate but assured that the risk of contagion to the financial system was “manageable”.

With AFP