Evergrande shares in China drop to 11-year low on default risk
HONG KONG, Sept.20 (Reuters) – Shares of Evergrande plunged 19% to their lowest level in more than 11 years on Monday, extending losses as investors frown on its business outlook with a deadline close for payment obligations this week.
As of noon, the stock had reached HK $ 2.06, the lowest level since May 2010.
The company’s property management unit (6666.HK) fell more than 12%, while its electric car unit (0708.HK) fell 8%. Evergrande-owned movie streaming company Hengten Net (0136.HK) fell 14%.
Evergrande has struggled to raise funds to pay off its many lenders, suppliers and investors, with regulators warning that its $ 305 billion in liabilities could trigger greater risks to the country’s financial system if not stabilized.
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Policymakers are telling Evergrande’s major lenders to expand interest payments or rollover loans, and market watchers are largely of the view that a direct government bailout is unlikely.
Evergrande is due $ 83.5 million in interest on September 23 for its March 2022 bond. It has another $ 47.5 million interest payment due on September 29 for the March 2024 notes. Both bonds would default if Evergrande does not pay the interest within 30 days of the scheduled payment dates.
In any default scenario, Evergrande will have to restructure bonds, but analysts expect investors to see a low recovery rate. Trading in the company’s bonds underscored how much investor expectations for its outlook have deteriorated this year.
The March 2022 8.25% dollar bond traded at 29.156 Monday afternoon, yielding more than 500%, down from around 13.7% earlier in the year. The 9.5% bond from March 2024 was at 26.4, with a yield above 80%, compared to 14.6% at the start of 2021.
Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent company and a special purpose vehicle, the paybacks in a potential restructuring could differ between the two sets of bonds, and all potential restructuring process could be prolonged.
The company’s woes also put pressure on the wider real estate sector as well as the yuan, which fell to its lowest level in three weeks at 6.4831 per dollar in offshore trading.
Shares of Sunac (1918.HK), China’s 4th largest real estate developer, fell more than 10%, while state-backed Greentown China (3900.HK) fell more than 9%.
Hong Kong’s Heng Seng Index (.HSI) fell more than 4%.
Reporting by Clare Jim; Editing by Shri Navaratnam
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