Evergrande loses US$2.2 billion in value as trade resumes, extends creditor voting

CHINA Evergrande Group lost US$2.2 billion, or 79 per cent of its market value, on Monday (Aug 28) after its shares resumed trading in a crucial step for the world’s most indebted property firm to restructure its offshore debt.

Evergrande is at the centre of a crisis in China’s property sector that has seen a string of debt defaults since late 2021, and its stock has been suspended for 17 months.

The developer, which is in the process of getting approvals from creditors and the courts to implement the debt-restructuring plan, said on Monday it would postpone by a month meetings for these creditors to vote on the proposal, to give more time “to maximise creditor engagement and support informed decision-making”.

The scheme meetings will now take place on Sep 26 instead of Monday, but three people with direct knowledge of the matter said that many creditors had already registered their vote by a deadline last Wednesday to submit forms.

Evergrande needs approval from more than 75 per cent of the holders of each debt class to approve the plan, which offers creditors a basket of options to swap debt for new bonds and equity-linked instruments backed by its stocks and those of its Hong Kong-listed units.

Its Hong Kong listed shares closed down 79 per cent to HK$0.35 on Monday. Market capitalisation shrank to HK$4.6 billion (S$795.8 million) from HK$21.8 billion when it last traded.

Evergrande’s valuation hit an all-time high of close to HK$420 billion in 2017.

The stock has been suspended since Mar 21, 2022, and resumed trading after the company said it had fulfilled all conditions by the Hong Kong Stock Exchange.

Its units, China Evergrande New Energy Vehicle Group and Evergrande Property Services Group, have both resumed trading in the past month after a 16-month halt.

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Evergrande would have faced delisting if the suspension had reached 18 months.

“Going forward, things will continue to be difficult for both its operations and share performance,” said Steven Leung, Hong Kong-based director of UOB Kay Hian. “There’s little hope that Evergrande can rely on selling houses to repay debt because homebuyers would prefer state-owned developers, and it won’t be able to benefit from stimulus policies.”

The deepening of the debt crisis in the property sector has weighed on the recovery of China’s economy, putting more pressure to policymakers to roll out stimulus measures. The government has so far relaxed residential housing loan rules and supported affordable housing, briefly cheering investors.

The Hang Seng Mainland Properties Index rose more than 6 per cent in the early morning session, before closing up 0.1 per cent.

However, China’s new home prices will likely show no growth this year, according to a Reuters poll.

“We haven’t seen meaningful improvement in the property market’s fundamentals,” said Mark Dong, Hong Kong-based general manager of Minority Asset Management, which manages more than US$1 billion in assets. The firm has cut its holding in property stocks, Dong added.

Evergrande’s trade resumption also came after the developer on Sunday reported a narrower net loss for the first half of the year due to a rise in revenue. Evergrande also posted a combined net loss of US$81 billion for 2021 and 2022 in a long-overdue earnings report last month, versus an 8.1 billion yuan (S$1.5 billion) profit in 2020.

As with Evergrande’s previous two annual financial statements, auditor Prism Hong Kong and Shanghai has not issued a conclusion on this report, citing multiple uncertainties relating to the business as a going concern.