Trading of China's Evergrande shares is suspended in Hong Kong as debt crisis continues

HONG KONG – Shares in troubled real estate developer China Evergrande Group and its property management unit Evergrande Property Services were suspended from trading in Hong Kong on Monday as investors awaited the next steps in the debt crisis saga.

Cailian, a Chinese online news service affiliated with the state-run Securities Times newspaper, said another developer, Hopson Development Holdings, plans to acquire a controlling stake in Evergrande Property Services Group.

Hopson suspended trading of its shares in Hong Kong on Monday. The suspension was “until announcement (s) were published regarding a major transaction by the company in which the company agreed to acquire a company’s stock. . . listed on the stock exchange “, it says in a file.

Hopson’s PR department said the company would not comment on “market rumors”.

Evergrande Property Services announced in its notice on the Hong Kong Stock Exchange that its shares have been suspended from trading pending an announcement in connection with a merger or acquisition.

Calls to Evergrande’s public relations office in Hong Kong went unanswered and the company’s offices in other parts of China were closed for a public holiday.

Evergrande headquarters in Shenzhen, China on September 26, 2021.Noel Celis / AFP via Getty Images

Evergrande has strived to avoid billions in default. The company owes billions to banks, customers, and contractors, and has sold assets to resolve its liquidity crisis.

Analysts say the Chinese government was reluctant to bail out Evergrande when authorities pushed companies to reduce their debt. Acquiring the company’s real estate management division would be a step towards restructuring it into smaller units, said Francis Lun, CEO of Geo Securities in Hong Kong.

The central government, in turn, could ask local governments to fund Evergrande to complete its many incomplete projects so they can be delivered or sold to buyers so the developer can pay their contractors, he said.

“From the Chinese government’s point of view, this is the best way to go. And of course I think it hurts some creditors, especially foreign creditors, ”said Lum.

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Evergrande is one of the largest Chinese conglomerates in the private sector, with more than 200,000 employees, 1,300 projects in 280 cities, and assets of 2.3 trillion yuan ($ 350 billion). It owes around 2 trillion yuan ($ 310 billion) to its creditors.

The company has amassed billions of dollars over the years building residential complexes, shopping malls, and office towers. Its situation worsened after August 2020, when Beijing tightened funding controls on China’s 12 largest developers, forcing them to reduce the debt burden on companies that are seen as a threat to the economy.

Evergrande sold various assets to alleviate the problem. Last week, it sold its $ 1.5 billion stake in Shengjing Bank to cover its debt to the state-owned lender based in northeast China.

China Evergrande Group’s shares have lost more than 80 percent of their value this year, and rating agencies say they will default on their debts.

Police officers and security personnel outside the Evergrande headquarters in Shenzhen, September 30, 2021.Aly Song / Reuters

Hopson, based in the Chinese province of Guangdong bordering Hong Kong, is one of the largest real estate companies in China, like Evergrande. Reports show it has a much lower debt to equity ratio than its larger competitors.

Nervousness about a slowdown in the Chinese economy and potential turmoil in its vital real estate industry have rocked world markets in recent weeks.

There are fears that a default by Evergrande could flood the entire Chinese economy and even global financial markets.

“I think the government is very close to solving the Evergrande problem because it cannot drag on forever, it will harm everyone involved,” said Lum.

Hong Kong’s benchmark Hang Seng Index fell 2.3 percent on Monday due to strong sales by real estate companies and banks.

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