China Evergrande shares dive to 11-year low as default risks grow

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its $305 billion of liabilities could spark broader risks to the country's financial system if not stabilised.

China Evergrande Group shares plunged on Monday to over 11-year lows, extending losses as executives try to salvage its business prospects and as default fears grow over a looming deadline for payment obligations this week.

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its $305 billion of liabilities could spark broader risks to the country’s financial system if not stabilised.

The stock closed down 10.2% at HK$2.28, after earlier plummeting 19% to its weakest level since May 2010.

The company’s property management unit dropped 11.3%, while its electric car unit declined 2.7%. Movie streaming company Hengten Net, majority-owned by Evergrande, plummeted 9.5%.

“The stock will continue to fall, because there’s not yet a solution that appears to be helping the company to ease its liquidity stress, and there are still so many uncertainties about what the company will do in case of a restructuring,” said Kington Lin, managing director of Asset Management Department at Canfield Securities Limited.

Lin said Evergrande’s share price could fall to below HK$1 if the company is forced to sell most of its assets in a restructuring.

One of Evergrande’s main lenders has made provisions for losses on a portion of its loans to the embattled developer, while some creditors are planning to give it more time to repay, four bank executives told Reuters.The developer said on Sunday it has begun repaying investors in its wealth management products with real estate.

Policymakers are telling Evergrande’s major lenders to extend interest payments or rollover loans, and market watchers are largely of the view that a direct bailout from the government is unlikely.

The People’s Bank of China, its central bank, and the nation’s banking watchdog summoned Evergrande’s executives in August in a rare move and warned that it needed to reduce its debt risks and prioritise stability.

Evergrande is due to pay $83.5 million interest on Sept. 23 for its March 2022 bond. It has another $47.5 million interest payment due on Sept. 29 for March 2024 notes. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande will need to restructure the bonds but analysts expect a low recovery ratio for investors. Trading of the company’s bonds underscored just how dramatically investor expectations of its prospects have deteriorated this year.

The 8.25% March 2022 dollar bond was traded at 29.156 cents on Monday afternoon, yielding over 500%, compared to around 13.7% at the beginning of year. The 9.5% March 2024 bond was at 26.4 cents, yielding over 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, recoveries in a potential restructuring could differ between the two sets of bonds, and any potential restructuring process may be prolonged.

The company’s woes also pressured the broader property sector as well as the yuan, which fell to a three-week low of 6.4831 per dollar in offshore trade.

Shares of Sunac, China’s No.4 property developer, tumbled 10.5%, while state-backed Greentown China shed closer to 6.7%.

Hong Kong’s Heng Seng Index was down 3.3%.

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