Trading in the shares of China‘s troubled real estate giant Evergrande was suspended on the Hong Kong Stock Exchange (HKEX) on Oct. 4, as the indebted developer missed interest payment deadlines and continued its efforts to repay investors.
A regulatory filing (pdf) with HKEX stated that “the trade suspension came ahead of an announcement containing inside information about a major transaction.”
The company’s shares have fallen by almost 80 percent to HK$2.95 per share from this year’s start at HK$14.14. Shares trading of its property management unit, Evergrande Property Services, was also suspended, a separate regulatory filing (pdf) showed.
Hong Kong’s Hang Seng index sank 2.2 percent after Evergrande’s suspension, while Tokyo’s Nikkei 225 dropped 1.1 percent. Shares fell 1 percent in Taiwan. Markets were closed for holidays in Shanghai and South Korea.
Last month, Evergrande missed required interest payments of $83.5 million and $47.5 million to international bondholders, due on Sept. 23 and Sept. 29, respectively.
The company’s silence on its interest payment obligations has, however, left investors wondering if they will have to recognize significant losses when their 30-day grace periods expire, raising the prospect of a massive default in October.
Investors have been grappling with unknowns, including what the communist regime might do in response. S&P Global Ratings predicts that a bailout is unlikely, claiming Evergrande “is not too big to fail.”
As the largest property developer in terms of sales, Evergrande currently owns 1,300 projects in more than 280 cities across China. In addition, the property giant’s business has expanded to theme parks, electric vehicles, financial services, and a soccer team.
Evergrande has been struggling to keep from defaulting on debts as it liquidates assets to address its cash crunch. The company owes billions of dollars to banks, customers, and contractors.
On Sept. 14, the highly indebted property group revealed in a statement (pdf) that its cashflow was under “tremendous pressure.”
With liabilities of $305 billion, equivalent to 2 percent of the country’s annual gross domestic product (GDP), Evergrande has sparked concerns that its woes could spread through the financial system and reverberate worldwide.
The problem extends beyond Evergrande’s debts. China’s real estate sector contributes to approximately 29 percent of its GDP, according to a research paper (pdf) published in August 2020 by renowned Harvard Professor of Public Policy and Economics Kenneth Rogoff and IMF Economist Yuanchen Yang,
The vast real estate sector is so overbuilt that it threatens to relinquish its longstanding role as a prime driver of Chinese economic growth and, instead, become a drag on it.
China’s house prices have soared over the past 15 years, often by more than 10 percent a year in large cities. Yet developers have borrowed considerable amounts in the process. The industry’s total debt is about $2.8 trillion, according to Morgan Stanley, a Wall Street investment bank.