China Evergrande Group, the prominent real estate conglomerate grappling with substantial debts, experienced a staggering 87% decline in its Hong Kong trading on Monday after a 17-month suspension. The company’s market valuation plummeted to just HK$4.6 billion ($586 million), relegating it to the status of a penny stock. This sharp descent, with shares now priced at HK$0.35, has drastically reduced its market capitalization from the pinnacle of over $50 billion reached in 2017.
The developer, currently immersed in a complex process of debt restructuring, divulged a staggering loss amounting to 33 billion yuan attributed to shareholders for the six months ending on June 30. The revelation, disclosed in a filing to the Hong Kong stock exchange, adds to the mounting woes of Evergrande, comprising losses surpassing 582 billion yuan over the previous biennium. These marked the first annual losses since its listing in 2009.
Postponing creditor meetings slated to commence on Monday, the beleaguered company now aims to convene these discussions in late September. The decision comes subsequent to the bid by Evergrande to recommence trading, underlining its commitment to improved internal control systems and processes aligned with Hong Kong listing regulations. Prior to this halt, the last trading session transpired on March 18, 2022. The precipitous 99% decline from its zenith serves as a resounding indicator of the housing crisis that has reverberated through the world’s second-largest economy throughout the last two years.
Revealing aggregate liabilities of 2.39 trillion yuan at the close of June, the company’s financial obligations outstripped its total assets, quantified at 1.74 trillion yuan. Excluding contractual liabilities, the overall tally stood at 1.78 trillion yuan, a marginal increase from the 1.72 trillion yuan reported in 2022. Although borrowings witnessed a modest uptick to 625 billion yuan, obligations to entities such as suppliers surged significantly to 1 trillion yuan, as illustrated by the released results.
With a scant cash buffer of 13.4 billion yuan, the resumption of trading and the ensuing creditor vote are unlikely to provide substantial relief. In April, Evergrande announced that approximately 77% of its Class A bondholders supported its plan, while only 30% of Class C bondholders offered their endorsement. The findings underwent scrutiny by Prism, a modest-sized accounting firm enlisted as Evergrande’s auditor in January. Prism refrained from delivering a conclusion on the interim earnings report due to manifold uncertainties.
Offshore bondholders now face an additional four-week period to digest the latest developments as they assess the contours of the company’s proposal for debt restructuring. Evergrande’s staggering losses and the adjournment of engagements with creditors serve as poignant reminders of the housing crisis, with emergent default issues confronting various Chinese developers. Despite the company’s commitment to fulfilling pre-sold residences, the precarious cash shortage “jeopardizes” its ability to finalize housing projects and the broader recovery of China’s housing sector.
As investors brace for potential market fluctuations, the industry anticipates further revelations from China’s real estate sector, burdened by a significant load of debt.
Source: Bloomberg
