The world’s most indebted property developer, China Evergrande Group, resumed share trading on Monday after a suspension of 17 months, witnessing a massive sell beat in the market. China Evergrande saw its shares dropping by a massive 87% just hours after the trading began in the stock exchange of Hong Kong, washing off $2.4 billion of its value.
Shares fell to as low as 22 Hong Kong cents at the opening on Monday, compared to its last closing of 1.65 Hong Kong Dollars in March 2022. This means that Evergrande’s market capitalization was reduced to HK$2.9 billion ($369.73 million) from its previous closing of HK$21.8 billion ($2.78 billion). Historically, the valuations have plunged by approximately 14,400% since it hit an all-time high valuation of HK$420 billion in 2017.
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Evergrande Group is at the center of China’s property sector collapse that has witnessed a series of debt defaults since 2021. The real-estate developer is currently in the process of gaining creditors and courts approval to implement its debt restructuring plan.
In a briefing on Monday, Evergrande said that the scheme meetings with the creditors will be delayed till 26th September, which was scheduled for today, by mentioning that “it is crucial that all… creditors understand the process of the proposed restructuring and the terms”. It further said that the company will extend the voting record time to September 20.
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Significance of the Move
The Evergrande stock was suspended for the last 17 months. Moreover, China Evergrande New Energy Vehicle Group and Evergrande Property Services Group, which are its Hong Kong-listed units have both resumed trading the previous month.
This move is seen as very crucial for the Evergrande Group, as swapping a part of its debt into equity-linked assets is part of its offshore debt restructuring plan. Additionally, if Evergrande had remained suspended for one more month, it would have faced delisting from the stock exchange.
The trade resumption comes as it reported halving its Half-yearly loss to 39.25 billion yuan ($5.38 billion), from a loss of 86.17 billion yuan a year earlier. The company posted its revenue at 128.81 billion yuan, a 44% increase from 89.28 billion yuan in June 2022.
Evergrande last made a profit of 8.1 billion yuan in 2020; however, since then, it has reported an accumulated loss of $81 billion in the years 2021 and 2022; as revealed in a long-awaited report. China Evergrande also managed to reduce its liabilities slightly by 2% to 2.39 trillion yuan ($328.14 billion), while its assets shrank by 5.4% to 1.74 trillion yuan.
Moreover, the Evergrande Group unveiled its multi-billion dollar plan to settle with its international creditors, where it seeks an additional financing of 36 to 44 billion dollars to complete the unfinished projects.
In its report on Sunday, Evergrande said it had managed to obtain financing for a couple of projects and will continue to seek others too. However, the major concern regarding the company’s future still exists, which questions its ability to operate efficiently as its auditors, Prism Hong Kong and Shanghai, still have not concluded its financial report, citing numerous uncertainties relating to the business’ future.
Further, It also needs to negotiate with other domestic lenders for extending the company’s loans pay back period. However, all of this depends on Evergrande’s ability to successfully complete its offshore debt restructuring plan.
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Relaxation in Property Rules
For years, Evergrande was one of the largest real-estate developers in China, but due to its huge borrowings in 2021 to further expand its presence, the company defaulted on its debt. This resulted in the stagnation of GDP growth of China as the real-estate sector accounts for nearly 30% of the Chinese economy.
To support the economy and encourage the real-estate sector, which has been a reason for the low growth in China, the county’s regulators have stepped up their policy support. This includes five Chinese regulators, namely, the People’s Bank of China, the Ministry of Housing, the State taxation Administration, and Urban-Rural Development Authority, announcing a series of policies to boost the real-estate sector.
The measures include allowing local governments to drop a rule that disqualifies people based on their previously-held mortgages from being considered as first-time home buyers. This policy easing will surely boost the property demand in large cities. The housing and tax authorities also announced the extension of personal income tax rebates for people who will purchase new homes within one year of selling the previous one.
As we move further, Beijing will be pushed to take more steps in this direction to boost the real-estate demand, such as lowering mortgage and deposit rates and providing support for the renovation of urban towns.
