CHINA Evergrande Group shares continued a downward spiral on Tuesday to a four-year low, after a Chinese city halted sales at two residential projects and alleged the troubled developer did not properly use funds.
The developer's shares declined as much as 16 per cent in Hong Kong following a 16 per cent plunge a day earlier. Shares touched HK$6.91 after market open, the lowest level since March 2017. The stock rout has sent Evergrande shares far below its book value.
Hunan province's Shaoyang city took the action after the firm did not properly handle pre-sale funds and intentionally evaded supervision, said a statement posted on the local housing department's website.
Evergrande did not respond to a written request for comment.
The halt came as the company's stock and bond prices plunged Monday, with a creditor's successful demand to freeze some assets underscoring concern Evergrande may struggle to raise funds.
Residential sales are a key source of cash flow for the firm, which has been paring its borrowings and met a key debt metric required by regulators as of June 30. Evergrande collected 321 billion yuan (S$67.8 billion) of cash from sales activities in the first half of this year, it said in a July 1 statement.
Chinese developers sell residential properties before construction is completed, but are required to deposit funds from such sales in supervised bank accounts. That is to prevent cash-strapped builders from abandoning projects.
In one of the Shaoyang projects, Evergrande sold properties equivalent to 290 million yuan this year as of July 13, but only 106 million yuan was deposited in the escrow account, said the local government statement. It said that for another project, about 17 million yuan was deposited, versus 238 million yuan of sales.
Local authorities repeatedly asked the company to rectify its action, noted the statement, but Evergrande allegedly failed to correct alleged wrongdoings.
The sales halt lasts until Oct 13, the statement said, and Evergrande cannot use funds currently deposited in supervised bank accounts. BLOOMBERG