The indebted Chinese real estate giant Evergrande suspended trading of its shares on the Hong Kong Stock Exchange again this Thursday following reports that its founder and president, Hui Ka-yan, is under a type of house arrest.
In a brief statement, Evergrande indicates that the negotiation of its securities would be frozen as of 9:00 a.m. local time (1:00 GMT), although it did not specify the reasons that led it to do so.
The same decision was also made by its real estate management subsidiary, Evergrande Property Services, and the one dedicated to the manufacturing of electric vehicles, Evergrande New Energy Vehicle, both listed on the same market as its parent company.
The shares of Evergrande, which in August filed a bankruptcy request in the US and this week announced that it cannot issue new debt after several times postponing its meetings with creditors who must approve its restructuring plan, plummeted this Thursday by 18, 98% on the Hong Kong Stock Exchange, generating even more doubts among analysts, who believe that the company could soon enter a liquidation process.
According to accounts disclosed this summer by the company, its net losses amount to the equivalent of more than 80,000 million euros from the beginning of 2021 to the middle of this year.
At the end of June, Evergrande had a total liability of 2.39 trillion yuan (about 311,174 million euros).
The financial position of many Chinese real estate companies worsened after, in August 2020, Beijing announced restrictions on access to bank financing for developers that, like Evergrande, had accumulated a high level of debt, supporting their growth for years with aggressive leverage policies. .
In recent months, faced with the crisis in the sector, the Government has changed its tone and has announced various support measures, with state banks also opening multimillion-dollar lines of credit to various developers.
Arrest of the president
The alleged house arrest of Hui Ka-yan, the founder and president of the indebted Chinese real estate giant Evergrande, or the difficulties that the company faces in carrying out its restructuring plan are the latest chapters of a crisis that dates back more than two years. .
The outbreak of the crisis
All the alarms went off in mid-2021, when Evergrande defaulted on its extraterritorial (‘offshore’) debt at a time when it had a liability of more than $300,000 million (about €285,720 million), giving rise to to hundreds of lawsuits and a situation of great uncertainty in the sector due to the implications of a possible bankruptcy.
Like many other Chinese developers, since the real estate boom of the late 90s, Evergrande depended largely on high levels of leverage (using debt to finance operations) and off-plan sales to continue carrying out its developments: some analysts estimated that The firm had 1.4 million homes sold before construction when the crisis broke out, equivalent to more than 200 billion dollars.
The ‘three red lines’
Among the causes of the Chinese real estate crisis, the so-called ‘three red lines’ stand out, regulations promoted by Beijing in 2020 that sought to limit access to financing to those developers that accumulated excessive liabilities, exceeded certain levels of leverage or did not have liquidity. enough to meet short-term debts.
This caused multiple firms in the sector to face a liquidity crisis that was added to the restrictions applied in those years to “cool down” the high price of housing – unaffordable for many Chinese families – in line with the principle established by the president. of the country, Xi Jinping, who assured that “homes are for living in, not for speculation.”
The market does not respond
The slowdown in growth after ‘zero covid’, the weight of the real estate sector on the GDP – according to some analysts, around 30%, adding indirect factors – and the distrust of buyers have translated into a slowdown in the market which worries not only the developers but also the families, who see housing as an important investment vehicle.
Given the situation, regulators have responded in recent months with numerous measures to support the sector, guarantees for the delivery of homes sold off plan and the withdrawal of many of the aforementioned restrictions, but the market is not responding: according to official figures, Commercial sales measured by floor area fell 5.3% in the first half after plummeting 24.3% in 2022.
The restructuring plan, in danger
Evergrande presented a proposal in March to restructure almost $20 billion of unpaid offshore debt, but has repeatedly postponed the votes in which its creditors will decide on the matter, the last of them last week, citing an evolution of the sales worse than expected and the consequent need for a “re-evaluation” of the plan.
The company hoped to have the support of its creditors before October 1 and finish the process by mid-December, but for the moment it has only achieved just over 30% of the votes for an important segment of debt (“class C” ) valued at about 13,000 million dollars, although it already has the green light for two other types.
The last few weeks have been especially turbulent for Evergrande, which disclosed losses of more than 80 billion euros since 2021 and reactivated the listing of its shares in Hong Kong after a year and a half of suspension, falling 8.6% in the last month and almost a 99% since its peak in October 2017.
Beyond the alleged house arrest of its founder, the group has filed a bankruptcy request in the United States, has warned of the impossibility of issuing new debt securities due to the investigation by regulators of its main subsidiary in China, has faced the arrest of employees of its wealth management subsidiary and today it froze its shares again.