Investor confidence in China Evergrande Group (恒大集團) is plunging amid mounting signs that the world’s most indebted developer faces a cash crunch.
The property giant’s stock yesterday tumbled to a four-year low, extending its two-day loss to 23 percent and wiping out a surge last week that was fueled by hopes for a special dividend. Several of Evergrande’s local and offshore bonds sank to all-time lows, with its 2025 dollar note falling to US$0.54.
Long-simmering doubts about Evergrande’s financial health intensified this week after the company had a US$20 million bank deposit frozen by a local court and was hit with a property sales ban by a city government alleging it had failed to set aside enough funds in an escrow account.
While the city later removed the ban, providing some relief to Evergrande’s stock, investors are worried the developer is not selling properties and other assets fast enough to repay liabilities that swelled to the equivalent of US$301 billion at the end of last year.
Some large state-owned banks have already reduced their lending to Evergrande, though the developer has said repeatedly that its relationships with creditors are normal.
The risk is that a major payment failure at Evergrande ripples through China’s financial system, eroding confidence in other highly leveraged property companies, shadow lenders and even some banks.
Officials from China’s top financial regulator told Evergrande founder Hui Ka Yan (許家印) at the end of last month that he should solve his company’s debt problems as quickly as possible, emphasizing the need to avoid major economic shocks, people familiar with the matter told Bloomberg News earlier this month.
The frozen bank deposit has made some creditors question whether Evergrande still enjoys the implicit support of Chinese authorities, said Omotunde Lawal, head of emerging-market corporate debt at Barings UK.
“The key thing to watch now is if other banks or trust companies rush to demand loan repayment or freeze assets,” Lawal said, adding that any news of successful asset sales by Evergrande might help calm investor nerves.
Bloomberg on Monday reported that Evergrande is considering an initial public offering in Hong Kong for its bottled water business, though the sale would only raise a few hundred million dollars and take place next year. The Shenzhen-based developer has about US$80 billion of equity in non-property businesses that could help generate liquidity if sold, BNP Paribas SA wrote in a report last month.
Whether Evergrande can secure attractive prices for those assets remains to be seen. All of its key listed units have tumbled in recent weeks, with the market value of Evergrande Property Services Group Ltd (恆大物業) shrinking by about US$17 billion since its February high. Evergrande New Energy Vehicle Group Ltd (恆大新能源汽車) is down more than US$60 billion in the period.
This week’s rout began on Monday morning, after traders circulated a court ruling on a loan dispute between Evergrande and China Guangfa Bank Co (廣發銀行). The court froze a 132 million yuan (US$20 million) deposit held by Evergrande’s main onshore subsidiary, Hengda Real Estate Group Ltd (恆大地產), at Guangfa Bank’s request.
Late on Monday, news emerged that the Chinese city of Shaoyang had halted sales at two of Evergrande’s residential projects. Shaoyang’s government said it took the action after Evergrande did not deposit enough presale funds into escrow accounts and intentionally evaded supervision, a statement posted on the local housing department’s Web site said.
Shaoyang authorities yesterday said they had allowed Evergrande to resume sales at the two projects after the developer transferred more money into the accounts.
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