Evergrande Crisis Deepens
Shares of Evergrande Group experienced another sharp decline on Wednesday, raising concerns about the possibility of the company’s liquidation. Evergrande, once a symbol of China’s property market boom, has seen its stock plummet by 42% this week, with the latest 19% drop closing its stock at just 32 Hong Kong cents (4 US cents). This decline has contributed to the company’s staggering 99.9% loss in value since its peak in October 2017.
Evergrande’s troubles deepened this week when it issued a warning about potential challenges to its offshore debt restructuring plan due to a regulatory investigation into its main subsidiary in mainland China. This warning came shortly after Chinese authorities initiated their first criminal probe into Evergrande following its debt default almost two years ago.
While there was a brief sense of relief among investors when Evergrande reported reduced losses for the first half of the year, fueled by a temporary surge in China’s property market, subsequent developments have been overwhelmingly negative. Growing numbers of investors are reportedly considering winding up the company if it fails to devise a new survival strategy promptly.
The looming threat of Evergrande’s potential liquidation has left investors on edge. This once major player in China’s real estate sector has been grappling with a mountain of debt, amounting to $328 billion as of June. The company had previously unveiled a multi-billion-dollar plan to reconcile with its international creditors and filed for bankruptcy protection in the United States as part of the restructuring process.
Should these efforts falter and Evergrande fail to reach an agreement with its creditors, the company could face liquidation, involving the sale of its assets and cessation of all operations. Evergrande’s recent weaker-than-expected sales prompted the cancellation of creditor meetings scheduled for this week.
Frederic Neumann, Chief Asia Economist for HSBC, expressed investor concerns about the effectiveness of Beijing’s measures to stimulate housing demand and their impact on overall economic growth. The property sector’s immense size suggests that, without a substantial rebound, economic growth may remain significantly lower than in previous decades.
The ongoing Evergrande saga continues to cast a shadow over China’s property market, with its implications extending to the broader economy.
