Evergrande related stocks plunge as liquidity crisis deepens
Published: Sep 16, 2021 12:28 PM
Evergrande Group. Photo: VCG

Evergrande Group. Photo: VCG

Stocks related to China's second-largest property developer Evergrande Group closed lower on Thursday as worries deepened that the company's debt crisis could have spillover effects on the country's financial market and real estate sector.

Shares of Evergrande closed 6.76 percent lower after plunging as much as 10 percent earlier. Shares of China Evergrande New Energy Vehicle Group fell by 12 percent.

The steep price drop comes after Evergrande's main business, Hengda Real Estate Group Co, applied on Thursday to suspend trading of its onshore corporate bonds for one day, fueling further concern over Evergrande's unfolding debt crisis. Upon resumption on Friday, the bonds will be traded through negotiated transactions, the group said in a filing.

Evergrande has been bogged down in a liquidity crisis, reportedly facing more than $300 billion in debt, while also failing to pay overdue bills and defaulting on multiple wealth management products.

The trading suspension and adjustment was likely aimed at limiting market volatility after the group revealed the potential default risk, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Thursday.

"The pricing of bonds needs to be greatly adjusted. Without a new trading method, the price of bonds may fall sharply and fluctuates. Many companies would adjust the trading mechanism for their bonds due to default risks," he said.

China Chengxin International (CCXI) said in a stock filing on Wednesday that it has lowered Evergrande's bonds ratings to A from AA, and that both the bonds ratings and its issuer's rating were put on a watch list for further downgrades.

Should the developer default on its debts, there will be adverse effects across the financial sector, with possible spillover effects on the financial system and on other real estate companies, Xi noted.

"Creditors who provide funds to Evergrande, mostly some small and medium-sized banks, will face great asset losses and risk of cross-defaults," Xi said. "It will also be difficult for other real estate enterprises to raise funds due to the default concern."

Shares of other listed real estate groups also dropped on Thursday with Sunac China Holdings sinking 11.38 percent and R&F Properties falling 11.87 percent.

The downgrade of Evergrande bonds and the subsequent market reaction indicates rising pressure on the capital market from the default risks, Yan Yuejin, a real-estate analyst told the Global Times on Thursday.

"For the industry, it comes as a warning call to others following real estate enterprises to monitor the risks, and prevent the spread of the debt crisis," Yan said.

Global Times