Fears of a contagion from the potential collapse of battered Chinese real-estate giant China Evergrande Group (恆大集團) yesterday sent property shares plunging in Hong Kong, with the firm expected to default on upcoming interest payments this week.
Evergrande, one of the country’s biggest developers, is on the brink of collapse as it wallows in debts of more than US$300 billion, raising concerns of a spillover into the domestic and global economy.
The crisis has triggered rare protests outside the company’s offices in several Chinese cities by investors and suppliers — some of whom say they are owed as much as US$1 million — demanding their money.
Photo: Bloomberg
Adding to the anger, it emerged at the weekend that six top executives would face “severe punishment” for redeeming financial products before telling retail investors that the firm could not pay them on time.
The firm said they must return the cash they redeemed “within a time limit,” adding that its investment arm must “strictly follow the announced repayment plan to ensure fairness and impartiality.”
The crisis sent shares in the firm diving about 17 percent yesterday, leaving it down about 90 percent from the start of the year.
Other property firms were also in the firing line, with Henderson Land Development Co (恆基地產) and New World Development Co (新世界發展) each about 12 percent lower. Sun Hung Kai Properties Ltd (新鴻基地產) shed 9 percent.
Meanwhile, insurance giant Ping An Insurance Group Co (平安保險) lost about 8 percent. China Minsheng Bank Corp (中國民生銀行), Agricultural Bank of China Ltd (中國農業銀行) and Industrial and Commercial Bank of China Ltd (中國工商銀行) all declined about 3 to 5 percent.
The dash for the exit left the Hang Seng down 3.3 percent.
A lack of comment from Beijing and the Mid-Autumn Festival holiday in China are only adding to the uncertainty, analysts said.
BOCOM International Holdings Co (交銀國際控股) analyst Philip Tse (謝騏聰) said that “there will be further downside” unless leaders give a clear signal on Evergrande or ease up on their clampdown on the real-estate sector, Tse said.
Attention is now on the company’s repayments, with interest due on bank loans yesterday and two bonds on Thursday.
However, one creditor quoted by Chinese financial outlet Caixin Global Monday said that there is a “99.99 percent” chance Evergrande would not be able to pay interest due in the third quarter.
As of end June, the property developer had total liabilities of almost 2 trillion yuan (US$309 billion) — roughly equivalent to 2 percent of China’s GDP — with an unknown amount of off-sheet debt.
Experts say the firm has more than 1 million units pre-paid by customers yet to be built, adding to the sense of dread among Chinese investors, many of them first-time buyers.
With access to lending markets now cut off and no money to complete developments and service its debts, the firm has been trying new ways to meet its responsibilities, including offering parking spaces and unfinished properties.
Still, while leaders are looking to curb excessive risk-taking, there is a general belief they will work to prevent the issue from becoming unmanageable and driving a hole through the already stuttering economy.
“The central government’s priority of social stability makes restructuring likely with haircuts for debt holders, but spillovers to other listed property developers means there will likely be a real economy impact on the real-estate sector,” National Australia Bank Ltd senior analyst Tapas Strickland said.
“To what extent Evergrande slows the growth momentum remains unclear,” Strickland added.
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