Shares of property giant China Evergrande Group (恆大集團) yesterday plunged after resuming trading in Hong Kong, with the failure of a unit sale deal deepening fears that the indebted firm might collapse and send shock waves through the world’s second-largest economy.
Evergrande had suspended trading on Oct. 4 pending an announcement on a “major transaction” as it struggled with about US$300 billion of debt — with investors worried about the potential fallout from its predicament.
The shares dropped yesterday more than 10 percent as it ended its two-week suspension.
A deal worth HK$20.04 billion (US$2.58 billion) to sell a 50.1 percent stake in Evergrande Property Services Group Ltd (恒大物業) had fallen through, it said in a statement on Wednesday, when it announced that it would resume trading.
The buyer in talks with Evergrande was a unit under Hong Kong real-estate firm Hopson Development Holdings Ltd (合生創展), which said in a stock market filing that it “regrets to announce that the vendor has failed to complete the sale.”
Hopson shares yesterday rose 5 percent as Evergrande Property Services tumbled.
Evergrande said it would continue to implement measures to ease its liquidity issues, cautioning that “there is no guarantee that the group will be able to meet its financial obligations.”
In a stark assessment of its state of trading, Evergrande said it had sold only 405,000m2 of real estate throughout last month and this month so far — normally a peak season for sales.
Contracted property sales totaled just 3.65 billion yuan (US$570.5 million) — a near collapse on the 142 billion yuan it recorded in a similar period last year.
There has been no further progress on asset sales following the sale of a US$1.5 billion stake in a regional Chinese bank last month, it said.
The Shenzhen-based company has missed several payments on US dollar-denominated bonds, and a grace period of 30 days on an offshore note is to end tomorrow.
Several Chinese property developers — including Sinic Holdings Group Co (新力控股集團), Fantasia Holdings Group (花樣年控股集團) and China Properties Group Ltd (中國地產集團) — have in recent weeks defaulted on debts and had their ratings downgraded.
Modern Land Co (當代置業) suspended trading in its shares yesterday after canceling the firm’s request to extend the maturity of a US$250 million bond by three months, while another domino could fall today, when Kaisa Group Holdings Ltd (佳兆業集團) is due to pay US$35.9 million of interest on a US dollar note.
“Contagion has surfaced across parts of China’s homebuilding sector, triggered by the distress of Evergrande and aggravated by subsequent credit events involving other developers,” Fitch Ratings analysts yesterday said in a note. “Market volatility has weakened near-term refinancing prospects and exacerbated liquidity strains for developers with weaker credit profiles.”
They predicted that the “mounting pressure will lead the authorities to take further measures to accelerate credit growth before the year-end.”
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