Evergrande's 'debt bomb' stock drops nearly 90% in one session

Evergrande shares fell 87% on their first trading day on the Hong Kong Stock Exchange after a 17-month suspension as they reported continued losses.

This morning, Evergrande shares fell to 0.35 Hong Kong dollars (0.04 USD), bringing the company's capitalization to 4.6 billion HKD (586 million USD). In 2017, Evergrande's capitalization peaked at over 50 billion USD.

Evergrande shares were suspended from trading in Hong Kong in March 2022 due to delays in releasing financial reports. They recently applied to resume trading because they have improved their internal controls and updated their procedures to comply with Hong Kong listing regulations.

Evergrande's stock performance since listing in 2009. Chart: Google Finance — Evergrande's stock performance since listing in 2009. Chart: *Google Finance*

The company is undergoing a debt restructuring that is expected to be lengthy. On August 27, it reported a net loss of 39.3 billion yuan ($5.4 billion) in the first half of the year. Evergrande now has total assets of 1.74 trillion yuan, including 13.4 billion yuan in cash and cash equivalents. It previously reported a loss of 582 billion yuan ($80 billion) in 2021 and 2022.

Evergrande will meet with creditors today. The first-half results will provide foreign bondholders with more information when evaluating Evergrande's restructuring plan.

Evergrande said in April that 77% of its A-bond investors had approved the plan, while only 30% of its C-bond holders had. The company needs at least 75% of each group to agree to one of China’s biggest restructurings to date.

The loss also underscores Evergrande’s struggles amid China’s property crisis, which has dragged down the world’s second-largest economy for the past two years.

Evergrande, like other Chinese real estate companies, fell into crisis since mid-2021. The cause is believed to be Beijing's "three red lines" policy, launched to reduce systemic risk by limiting the ability of real estate companies to borrow new loans.

Evergrande suffered the most, due to its excessive financial leverage to develop projects and diversify its business. Its total debt at the end of June was about 2.4 trillion yuan ($340 billion), equivalent to 2% of China's GDP.

Evergrande is the latest in a string of other Chinese real estate giants, including Kasia, Fantasia and Shimao Group, to default. Most recently, China's largest private real estate company, Country Garden, warned that it is "considering various debt settlement options."

Ha Thu (according to Bloomberg)

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