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China Evergrande shares plummet to 11-year low on default risks

China Evergrande shares plummet to 11-year low on default risks

This photo shows signage on the China Evergrande Centre in Hong Kong on Sep 15, 2021. (Photo: AFP/Peter Parks)

HONG KONG: Shares of Evergrande on Monday (Sep 20) plunged to over 11-year lows, extending losses as executives try to salvage its business prospects and as default fears grow over a looming deadline for payment obligations this week.

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its US$305 billion of liabilities could spark broader risks to the country's financial system if not stabilised.

The stock closed down 10.2 per cent at HK$2.28, after earlier plummeting 19 per cent to its weakest level since May 2010.

The company's property management unit dropped 11.3 per cent, while its electrics car unit declined 2.7 per cent. Movie streaming company Hengten Net, majority-owned by Evergrande, plummeted 9.5 per cent.

"The stock will continue to fall, because there's not yet a solution that appears to be helping the company to ease its liquidity stress, and there are still so many uncertainties about what the company will do in case of a restructuring," said Kington Lin, managing director of Asset Management Department at Canfield Securities Limited.

Lin said Evergrande's share price could fall to below HK$1 if the company is forced to sell most of its assets in a restructuring.

One of Evergrande's main lenders has made provisions for losses on a portion of its loans to the embattled developer, while some creditors are planning to give it more time to repay, four bank executives told Reuters.

The developer said on Sunday it has begun repaying investors in its wealth management products with real estate.

Policymakers are telling Evergrande's major lenders to extend interest payments or rollover loans, and market watchers are largely of the view that a direct bailout from the government is unlikely.

Evergrande is due to pay US$83.5 million interest on Sep 23 for its March 2022 bond. It has another US$47.5 million interest payment due on Sep 29 for the March 2024 notes. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande will need to restructure the bonds but analysts expect a low recovery ratio for investors. Trading of the company's bonds underscored just how dramatically investor expectations of its prospects have deteriorated this year.

The 8.25 per cent March 2022 dollar bond was traded at 29.156 on Monday afternoon, yielding over 500 per cent, compared to around 13.7per cent at the beginning of the year. The 9.5 per cent March 2024 bond was at 26.4, yielding more than 80 per cent, compared to 14.6 per cent at the start of 2021.

Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent company and a special purpose vehicle, recoveries in a potential restructuring could differ between the two sets of bonds, and any potential restructuring process may be prolonged.

The company's woes also pressured the broader property sector as well as the yuan, which fell to a three-week low of 6.4831 per dollar in offshore trade.

Shares of Sunac, China's number 4 property developer, dropped 10.5 per cent, while state-backed Greentown China shed closer to 6.7 per cent.

Source: Reuters/gs

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