China Evergrande Group, the heavily indebted property developer, witnessed a staggering 87% plunge in Hong Kong trading on Monday, marking its first day of trading after a 17-month suspension. The company’s shares plummeted to HK$0.35, pushing its market value down to just HK$4.6 billion ($586 million), a stark contrast to its peak valuation of over $50 billion in 2017.
This precipitous decline follows a challenging period for the conglomerate, currently undergoing an extensive debt restructuring process. According to a filing with the Hong Kong stock exchange, China Evergrande reported a shareholder loss of 33 billion yuan for the six months ending on June 30. This loss adds to the substantial 582 billion yuan in losses incurred over the previous two years, marking the company’s first consecutive annual losses since its listing in 2009.
The developer’s default on payments has prompted the postponement of crucial creditor meetings originally scheduled for Monday. The new plan outlines the rescheduling of these meetings to late September. China Evergrande had sought permission to resume trading, asserting that its enhanced internal control systems and processes align with the requirements set by Hong Kong listing rules. Prior to this resumption, the company’s shares had last traded on March 18, 2022. The dramatic 99% downturn from its peak highlights the severe housing crisis that has rattled the world’s second-largest economy over the past couple of years.
China Evergrande’s financial woes are underscored by its aggregate liabilities, totaling 2.39 trillion yuan by the end of June. This figure surpasses the company’s total assets, which stand at 1.74 trillion yuan. After excluding contract liabilities, the net liabilities amount to 1.78 trillion yuan, a slight increase from the 1.72 trillion yuan reported in 2022. The developer’s borrowings only experienced a marginal rise to 625 billion yuan, while trade payables and other outstanding debts to various parties, including suppliers, surged to 1 trillion yuan, as revealed in its financial results.
With a meager cash reserve of 13.4 billion yuan, the prospect of a trading resumption and impending creditor vote offers little relief. In April, China Evergrande unveiled its debt restructuring plan, garnering support from 77% of its Class A bondholders, while only 30% of Class C bondholders endorsed the proposal. The financial results were reviewed by Prism, a smaller accounting firm appointed as Evergrande’s auditor in January. However, Prism refrained from issuing a conclusion on the interim earnings report due to the presence of multiple uncertainties.
Offshore bondholders now face an additional four-week period to digest the latest developments as they evaluate the company’s debt restructuring proposition. Evergrande’s significant financial losses and postponed interactions with creditors serve as a stark reminder of the housing crisis and the emerging default concerns plaguing numerous Chinese developers. Although the company vows to prioritize the delivery of pre-sold homes, the shortage of cash jeopardizes housing project completions and the broader real estate recovery in China.
As investors brace for potential volatility, the market eagerly anticipates updates from China’s debt-laden real estate sector. The ongoing saga of China Evergrande underscores the challenges faced by the country’s property industry and the wider economic implications of its financial struggles.
Source: Bloomberg
