China Evergrande shares plummet 12% as it edges closer to default

After warning that it might not be able to meet repayments with $82.5m due on Monday, the property giant appears headed for restructuring

First published on Mon 6 Dec 2021 00.49 EST

The struggling Chinese property developer Evergrande has seen its shares plunge to an 11-year low after strong indications that it is on the verge of a potentially disastrous default and could be forced into a full-blown restructuring.

The company has lurched from one crisis to another in recent months as it faced a series of repayments on debts – three times waiting until the last possible moment to stump up the cash needed to stay afloat.

But a statement from the company over the weekend said that there was “no guarantee” that the group could meet its obligations and added that creditors had demanded immediate repayment of a total of $260m (£196m).

Its most pressing problem is how to repay $82.5m due on Monday – a deadline pushed back 30 days when it failed to meet the obligation on the due date back in November.

“Since September 2021, the group has been diligently reviewing its capital structure and liquidity condition with the help of its financial and legal advisors, evaluating all available strategic options, and maintaining ongoing dialogue with offshore creditors,” said the statement.

“In light of the current liquidity status of the group, there is no guarantee that the group will have sufficient funds to continue to perform its financial obligations … The company received a demand to perform its obligations under a guarantee in the amount of approximately US$260m. In the event that the group is unable to meet its guarantee obligations or certain other financial obligations, it may lead to creditors demanding acceleration of repayment.”

There were reports that its billionaire founder Xu Jiayin was summoned by officials to explain the statement, and Guangdong’s provincial government said it was sending a team to to Evergrande to “supervise and promote enterprise risk management”.

The steady flow of bad news sent China Evergrande Group’s shares down 12% in Hong Kong on Monday. They now stand at HK$1.98 ($0.2540), the lowest level since May 2010.

Evergrande was once China’s top-selling developer but is now grappling with more than $300bn in liabilities, meaning a collapse could ripple through the property sector and beyond.

Analysts have warned that one-third of China’s developers could face a similar crisis as the country’s bloated housing market stagnates after a crackdown on reckless borrowing by Xi Jinping’s government in Beijing.

On Monday a smaller developer, Sunshine 100 China Holdings Ltd, defaulted on $179m of debt and interest payments that had been due on Sunday.

The default was due to “liquidity issues arising from the adverse impact of a number of factors including the macroeconomic environment and the real estate industry”, the company said in an exchange filing.

Sunshine 100 has repeatedly struggled to meet its debt obligations this year and also defaulted on a bond repayment in August. The company now has $385m of outstanding dollar notes, according to data compiled by Bloomberg.

Investors are also concerned about a potential default by Kaisa Group Holdings Ltd, which faces a $400m bond maturity on Tuesday because it failed to secure a debt swap that would have bought it crucial time to pay back some of its bonds. After Evergrande, it owes the most to foreign bondholders, with debts of $12bn.

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