A sell-off in China Evergrande’s shares and bonds deepened after sales at two of its projects were temporarily halted, adding to a market rout that has wiped about $4bn off the value of the highly-indebted developer.
Evergrande’s Hong Kong-listed shares tumbled 10 per cent to a four-year low on Tuesday, adding to a fall of 16 per cent on the previous day.
The sharp decline in the shares comes as a crescendo of issues for the company has alarmed investors during a period in which Chinese government scrutiny of its debt levels has also increased.
The latest setback came after authorities in Shaoyang, a city in China’s Hubei province, said late on Monday that sales at two of Evergrande’s projects had been halted because of a shortage of funds in presales accounts. On Tuesday afternoon, Shaoyang allowed sales to resume, helping the shares to recover steeper losses earlier in the day.
Evergrande’s business model, which has benefited from decades of urbanisation in China and made its chair Hui Ka Yan the country’s richest man in 2017, often involves upfront payments for its properties before they are completed. Since last summer, Beijing has sought to rein in developer leverage through balance sheet metrics known as the “three red lines”.
Over the weekend, traders circulated a Jiangsu province court order issued earlier in July that had frozen a Rmb132m ($20m) bank deposit for its mainland Chinese division. The order was linked to a disagreement over early repayment terms of a loan from Guangfa Bank. Evergrande said on Monday it would sue the bank over the freeze.
The news crystallised concerns over the group’s ability to refinance its vast debts. As of the end of 2020, Evergrande had almost Rmb2tn in liabilities, and it has frequently tapped dollar-denominated bond markets. On Tuesday, the price of its bonds maturing in 2025 sank 10 per cent to 59 cents on the dollar to trade at a yield of 26 per cent.
Evergrande has embarked on a series of asset sales to raise cash, and last year listed a property advisory company in Hong Kong. Last week, it said its board would meet later in July to discuss a special dividend, boosting the shares by 10 per cent.
Bloomberg News reported this week that Evergrande was considering an initial public offering for its bottled water business. The group has stakes in several businesses outside of property, including an electric vehicle company, whose shares plunged 11 per cent on Tuesday following a 19 per cent fall a day earlier.
Additional reporting by Wang Xueqiao in Shanghai