China Evergrande Shares Plummet to 11-Year Low on Default Risks

Shares of Evergrande plunged as much as 19% in morning trade in Hong Kong on Monday to their lowest in more than 11 years as investors brace for the risk of default on a payment due on Thursday.

By noon, the stock had touched HK$2.06, the weakest level since May 2010. By 3.30pm local time it was still down more than 12%.

The company’s property management unit dropped more than 12%, while its electrics car unit declined 8%. Movie streaming company Hengten Net, majority-owned by Evergrande, plummeted 14%.

Evergrande has been scrambling to raise funds to pay its many lenders, suppliers and investors, with regulators warning that its US$305 billion of liabilities could spark broader risks to the country’s financial system if not stabilised.

One of Evergrande’s main lenders has made provisions for losses on a portion of its loans to the embattled developer, while some creditors are planning to give it more time to repay, four bank executives said.

The developer said on Sunday it has begun repaying investors in its wealth management products with real estate.

Policymakers are telling Evergrande’s major lenders to extend interest payments or rollover loans, and market watchers are largely of the view that a direct bailout from the government is unlikely.

Thursday D-Day

Evergrande is due to pay $83.5 million in interest on Thursday for its March 2022 bond. It has another $47.5 million interest payment due on Sept 29 for the March 2024 notes. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.

In any default scenario, Evergrande will need to restructure the bonds but analysts expect a low recovery ratio for investors. Trading of the company’s bonds underscored just how dramatically investor expectations of its prospects have deteriorated this year.

The 8.25% March 2022 dollar bond was traded at 29.156 on Monday afternoon, yielding over 500%, compared to around 13.7% at the beginning of the year. The 9.5% March 2024 bond was at 26.4, yielding more than 80%, compared to 14.6% at the start of 2021.

Goldman Sachs said last week that because Evergrande has dollar bonds issued by both the parent company and a special purpose vehicle, recoveries in a potential restructuring could differ between the two sets of bonds, and any potential restructuring process may be prolonged.

The company’s woes also pressured the broader property sector as well as the yuan, which fell to a three-week low of 6.4831 per dollar in offshore trade.

Shares of Sunac, China’s number 4 property developer, dropped more than 10%, while state-backed Greentown China shed over 9%.

• By Reuters and Jim Pollard