The Hong Kong Stock Exchange banned trading in the shares of the troubled property developer China Evergrande Group on Monday morning as the business raced to deliver flats to millions of house purchasers and obtain cash to manage its $300 billion in debt.
Evergrande claimed in a filing that its stock was stopped pending an announcement “having inside information,” but didn’t elaborate. The stock had previously been stopped in October while the business attempted to complete the sale of a $2.6 billion interest in its property management subsidiary.
That transaction didn’t work out in the end. After failing to make the last loan payment to overseas investors, the massive property developer went into default last month. Hundreds of lawsuits have been filed against the corporation, which owes property purchasers an estimated 1.6 million flats.
Despite the fact that Evergrande’s liquidity crunch has yet to be resolved, the company said last week that it would complete the construction of 39,000 apartments by the end of 2021. Evergrande’s stock soared after the news, but it plummeted the next day as the business missed yet another payment due on its foreign debt.
Evergrande recently seemed to revise its plan to reimburse investors in its wealth management subsidiary, offering to pay each investment $1,260 each month for the next three months. It has previously refused to provide a monetary figure for reimbursement. Evergrande stated in a message to wealth management investors on Friday that it intends to “aggressively seek cash,” but that the situation is not “optimal.”
To assist support the company’s operations, up to 80% of Evergrande employees were required to invest in wealth management products. Employees, contractors, and property purchasers demonstrated outside Evergrande headquarters and government buildings in September.
Evergrande borrowed more than $300 billion to develop quickly and become one of China’s largest enterprises. Beijing enacted new laws last year to regulate the amount due by large real estate developers. Evergrande was forced to market its properties at deep discounts as a result of the new rules in order to guarantee that money was flowing in to keep the company viable.
It is currently struggling to make interest payments on its loans. Evergrande’s stock has dropped over 90% in the last year as a result of the uncertainty. Evergrande’s difficulties are critical for a number of reasons. To begin with, many individuals purchased land from Evergrande before construction began. They have made deposits and may lose their funds if the company fails. Companies that conduct business with Evergrande are also present. Construction and design businesses, as well as material suppliers, are in danger of suffering significant losses, which might lead them to file for bankruptcy.
The third factor is the possible impact on China’s financial system: if Evergrande defaults, banks and other lenders may be obliged to cut back on lending. This might result in a credit crisis, in which businesses are unable to borrow money at reasonable rates.
A credit crisis would be disastrous for the world’s second-biggest economy, as businesses that are unable to borrow find it impossible to expand and, in some circumstances, cease to exist. This may frighten international investors, who may regard China as a less appealing location to invest in.
