Thursday, September 16, 2021

Evergrande Stock Free Falling: Plunges 82% and its Subsidiary Suspends Its Bonds From Trading

The fall into the abyss of the Chinese real estate giant Evergrande is not giving investors a single day of respite. The company, which has dropped another 7.47% on the Hong Kong Stock Exchange this Thursday, has already plunged more than 82% so far this year. The situation is such that one of its main subsidiaries, Hengda Real Estate Group, has been forced to request this Thursday the suspension of trading of its corporate bonds listed on the Chinese domestic market after a new downgrade.

The developer, the most indebted globally with liabilities reaching $300 billion, has had to request such a move after the Shanghai and Shenzhen stock exchanges have repeatedly frozen trading of the bonds in recent days due to the heavy volatility that is affecting trading.

Evergrande has few options on the table and its future is becoming more complicated by the minute in the face of an almost total lack of liquidity. Analysts see three possible scenarios ranging from disorderly bankruptcy, controlled collapse or a bailout by the Chinese state, an option that a sector of the market sees as increasingly less likely. Now, the suspension of Hendga's corporate bonds raises the probability of defaults and debt restructuring. Hengda requested a one-day suspension of trading in its corporate bonds on the domestic market, Reuters reports Thursday. Once trading resumes on Friday, its Shanghai- and Shenzhen-listed bonds will only be traded via negotiated trades.

The property giant announced earlier this week that two of its subsidiaries had defaulted on their guarantee obligations incurred on wealth management products, immediately putting the group "at risk of cross insolvency." The news caused the shares to plummet 11.87% last Tuesday alone.

Cross default" in common law refers to the situation in which it is sufficient for a debtor to enter into suspension of payments with a single creditor for other creditors with whom it has signed a "cross default" clause to be able to claim repayment of their loan. Such a situation, Evergrande warns, "would have a negative effect on the company's business and future".

In November last year, the developer failed to achieve its goal of listing Hengda, which would have been listed in Shenzhen, and has been forced to seek alternative sources of liquidity to meet its short-term maturities.

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