On Thursday, China Evergrande shares plunged 12.5 percent after an agreement to sell some of the company’s properties to Hopson Development Holdings fell through.
Hopson’s stock finished roughly 7.6% higher, while Evergrande Property Services’ stock dropped 8%.
Evergrande, which is heavily indebted, was in talks with Hopson, a smaller rival, earlier this month to sell a portion of its services unit. Hopson, on the other hand, stated late Wednesday that talks to buy a 50.1 percent share in Evergrande Property Services had fallen through. In a second filing, Evergrande acknowledged the deal’s cancellation.
According to documents, the acquisition would have been worth $2.58 billion in Hong Kong dollars.
With a total of nearly $300 billion in liabilities, Evergrande is China’s second-biggest developer by sales and the industry’s largest issuer of offshore notes. Concerns over the company’s ability to repay its debt have sparked fears of a spillover into China’s real estate industry, which accounts for nearly a quarter of the country’s GDP (together with allied businesses).
The three equities resumed trading on Thursday, more than two weeks after they were halted due to a “significant transaction.”
There has been no movement on asset sales
Evergrande is approaching the end of a 30-day grace period for a highly watched $83 million interest payment to investors in an offshore US dollar-denominated bond when the Hopson deal falls apart. It will technically default if the developer does not pay by Saturday.
Evergrande announced late Wednesday that “there has been no meaningful movement on the sale of assets of the Group” after selling its $1.5 billion interest in Shengjing Bank in late September.
According to Reuters, Chinese state-owned Yuexiu Property withdrew a $1.7 billion plan to buy Evergrande’s Hong Kong headquarters building, citing sources.
Both corporations did not react to a request for comment from CNBC right away.
With the implementation of the “three red lines” guideline for real estate enterprises to lower the ratio of debt to assets, Evergrande’s significant reliance on debt to develop quickly came under increased government scrutiny last year.
According to Natixis, China Evergrande had passed all three red lines in the first half of this year, whereas Hopson and Yuexiu had not crossed any of them.
Evergrande reported that its contracted property sales from the beginning of September totaled 3.65 billion yuan ($571.1 million) as of Oct. 20.
This is 90 percent less than the 38.08 billion yuan in committed property sales in August.
Evergrande reported that year-to-date contracted property sales totaled 442.3 billion yuan as of Oct. 20.
Authorities are attempting to assuage fears of contagion, which had previously scared global markets.
The People’s Bank of China has stated several times since Friday that Evergrande is a unique and controlled issue.
The first measure of response, according to central bank governor Yi Gang, is to prevent Evergrande’s problems from spreading to other real estate companies.
Liu, Vice Premier Individual difficulties have emerged in the real estate market, he said at a banking seminar on Wednesday, but that reasonable finance demands are being satisfied. Evergrande was not mentioned by name by Liu.