The situation is not improving for Evergrande: the Chinese real estate group, considerably in debt and whose potential bankruptcy could shake the economy of the Asian country, saw its stock collapse on Thursday, October 21, when it returned to the Hong Kong Stock Exchange .
This promoter, one of the biggest in China – which notably owns the Guangzhou Football Club trained until recently by the Italian Fabio Cannavaro, former central defender and 2006 world champion -, drags 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 in the context of the company’s announcement of 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 trading in its stock would resume this Thursday, while warning that it could “Not being able to honor its financial obligations”.
Waiting for a reaction from Beijing
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).
Evergrande “Will continue to implement measures to mitigate [ses] liquidity problems ”, assured the real estate developer on Wednesday to try 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.
The poor health of Evergrande, however, is only one symptom of the generally seized Chinese real estate sector.
Fall of real estate in China
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 (SNB) said on Wednesday, without giving a precise percentage.
According to calculations by the Bloomberg agency, prices have fallen on average by almost 1%. A small revolution when the real estate sector has long been one of the engines of the Chinese economy with the construction of millions of homes. A frenzy stimulated by the need of most Chinese to access property, an almost mandatory step before marriage.
Faced with the swelling of the debt in real estate, regulators imposed last year on the sector “Three red lines”, prudential ratios aimed at reducing the use of borrowing by promoters. 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, in October, the group was unable to honor a third loan in the amount of 148 million dollars (127 million euros).
However, Evergrande has a grace period of thirty days for each loan. The deadline for the first payment is October 23, this Saturday.
Beijing 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 that the risk of contagion to the financial system was “Manageable”.