The fears around China’s property market continued to bubble up (no pun intended) as property giant Evergrande Group’s shares resumed trading after seventeen months. 😮
China Evergrande Group last traded on the Hong Kong Stock Exchange on March 18, 2022, and closed at 1.65 Hong Kong dollars. It was suspended after failing to publish its 2021 financial results while also defaulting on its debt. Since then, it’s been trying to save its business operations by restructuring debts and identifying the fair value of its assets and liabilities. ❌
In March of this year, it announced an offshore debt restructuring program, stating it could not finish projects to repay suppliers and lenders. And in July, it finally reported its 2021 and 2022 financials, revealing net losses of $66.36 billion and $105.9 billion, respectively. That compared to a slight net profit in 2020 during normal market conditions. 📊
It’s not the only property developer to have defaulted or been suspended by the Hong Kong Stock Exchange. JPMorgan estimated that roughly 50 developers defaulted on $100 billion of offshore bonds over the last two years as China’s property market increasingly bifurcated.
Last week, the company said it “adequately” fulfilled the presumption guidance issued by the exchange and applied to resume trading. It came just in the nick of time, too, as it could’ve been delisted if its shares had been suspended for more than 18 months.
It was approved, and trading resumed today, with shares opening 87% below their last closing price and ending the day down nearly 80%. 📉
As the market sniffs out a new price for the company’s shares, it will continue to drum up support for its restructuring plan. It needs approval from more than 75% of the holders of each debt class to approve the plan, which allows them to swap debt for new bonds and instruments linked to its shares traded on the Hong Kong exchange. 🗳️
Despite its recent progress, it will remain an uphill battle for the developer. Although the government has rolled out support for the sector, falling home prices, weak homebuyer confidence, and a slowing overall economy remain significant headwinds.
As discussed above, other developers are having trouble, too. That’s causing buyers to stick with state-linked developers or private ones with strong financial positions, as they want to ensure the home they purchase can be completed. That lack of confidence will further hurt the weakest players in the space, who are already buckling in the market’s current conditions. 😬
Time will tell how this all plays out. But there are certainly many moving parts in the world’s second-largest economy’s biggest sector. Investors will be watching closely. 👀