Evergrande shares crash 14 per cent after block on trading is lifted

·2-min read
Trading in shares of China’s Evergrande resumed after 17 days on Thursday  (AP)
Trading in shares of China’s Evergrande resumed after 17 days on Thursday (AP)

Shares of China’s indebted real estate giant Evergrande slumped by almost 14 per cent as trading began on the Hong Kong Stock Exchange on Thursday following a two-week suspension.

The stocks fell a day after the company announced that its efforts to sell a property service unit to pay off its obligations fell through.

Real estate firm Hopson Development, a rival of Evergrande that it owes money to, was reportedly earlier ready to buy a 51 per cent stake in its property services unit.

But Evergrande said on Wednesday that the $2.6bn (£1.88bn) deal fell through because of disagreements on the terms of the deal. The buyer “had not met the prerequisite to make a general offer for shares”, Evergrande said in a statement through the Hong Kong Stock Exchange.

Hopson later said that the deal was terminated on 13 October and it is now exploring other options to protect its interest, AP reported.

This in turn led to the crashing of Evergrande’s shares by as much as 14 per cent on Thursday. Though Evergrande marginally recovered its losses, it was still down 12.54 per cent at closing time.

The deal could have given a cash surplus to the company to pay its interest obligations and could have possibly helped settle its dues to Hopson.

Selling off of stakes is crucial to Evergrande since in September and October, Evergrande failed to pay interest payments of two US dollar-dominated offshore bonds, for which the company currently has a grace period. After that, they will be considered to have defaulted. In a short-term relief to investors, Evergrande managed to settle dues of one domestic bond last month.

So far, the company has only made one sale of stakes to a Chinese commercial bank it owed debts to, and said on Wednesday that “there has been no material progress” in plans to shed other assets to “ease the liquidity issues” of the company.

The debt ridden Chinese giant had halted the trading of its shares 17 days ago on 4 October for a major announcement as it scrambled for cash to meet interest obligations. Evergrande, China’s second largest builder, is the world’s most indebted developer at this point with a $300bn debt and total obligations amounting to 2 per cent of China’s GDP.

Fears of the company defaulting on its debt obligations and nearing a collapse has worried investors as the effects would not just trigger a financial crisis in China but would also spill through into the global markets.

However, the Chinese central bank last Friday tried to allay fears and said the “risk of spillover” to the financial industry is controllable.

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