Shares of China’s Evergrande plummet after major trade deal collapses

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Shares in Chinese real estate giant Evergrande tumbled on Thursday after resuming operations in Hong Kong, with the failure of a unit sale deal deepening fears that the indebted company would collapse and send shockwaves to the second largest economy. biggest in the world.

Evergrande had suspended operations on October 4 pending an announcement about a “major transaction” as it struggled with some $ 300 billion in debt, and investors were concerned about the possible consequences of its situation.

On Thursday, the stock fell more than 10 percent when its two-week suspension ended.

A deal worth 20.04 billion Hong Kong dollars ($ 2.58 billion) to sell a 50.1 percent stake in its real estate services division fell through, it said in a statement on Wednesday, when it announced it would resume operations. .

The buyer in talks with Evergrande was a unit of Hong Kong real estate firm Hopson Development Holdings, which said in a stock market presentation that it “regrets to announce that the supplier was unable to complete the sale.”

Hopson shares rose 5 percent Thursday as Evergrande Property Services fell.

Evergrande said it will continue to implement measures to alleviate its liquidity problems and warned that “there is no guarantee that the group will be able to meet its financial obligations.”

In a tough assessment of its current state of commerce, Evergrande said it had sold just 405,000 square meters of real estate in September and October so far, normally a peak period for sales.

Leased property sales totaled just 3.65 billion yuan ($ 571 million), a collapse of close to the 142 billion yuan it recorded in a similar period last year.

There has been no further progress in asset sales, the group said, following the sale of a $ 1.5 billion stake in a Chinese regional bank in September.

The Shenzhen-based company has defaulted on several dollar-denominated bond payments, and a 30-day grace period for a foreign note ended on Saturday.

‘Contagion’

Fears that Evergrande could collapse and send shockwaves into the Chinese economy have rattled buyers and markets, though Beijing has insisted any aftermath would be containable.

This week’s data showed that China’s economic growth slowed more than expected in the third quarter as the housing sector crackdown and the energy crisis began to take its toll.

In a sign of current weakness, home sales by value slumped 16.9 percent year-on-year in September, after a 19.7 percent drop in August, AFP calculations based on official data showed.

New home prices in China also fell for the first time in six years last month.

In recent weeks, several national property rivals have already defaulted on their debts and had their ratings lowered.

Hong Kong-listed Sinic Holdings became the latest to fail a payment, while midsize competitor Fantasia also failed to meet its obligations in recent weeks.

Evergrande first listed in Hong Kong in 2009, raising HK $ 70.5 billion in its initial public offering, making it the largest private real estate company in China and its founder, Xu Jiayin, the richest man. of the continent at that time.

In a wave of expansion, Xu, also known as Hui Ka Yan in Cantonese, bought the then beleaguered Guangzhou football team in 2010, renaming it Guangzhou Evergrande and investing money in world-class players and coaches.

The group diversified into various sectors, including bottled water and electric vehicles.

But Evergrande began to waver under the new “three red lines” imposed on developers in a state crackdown in August 2020, forcing the group to ditch increasingly discounted properties.

“Contagion has emerged in parts of China’s home construction sector, sparked by distress at Evergrande and compounded by subsequent credit events involving other developers,” analysts at Fitch Ratings warned in a note Thursday.

“Market volatility has weakened short-term refinancing prospects and exacerbated liquidity strains for developers with weaker credit profiles.”

They predicted that “mounting pressure will lead authorities to take more steps to accelerate credit growth before the end of the year.”

(AFP)