Beijing: Shares of the embattled Chinese developer Evergrande were suspended on the Hong Kong stock exchange early Monday amidst heightened speculation about a potential sale.
“Due to the suspension of trading in the underlying shares, trading in Futures & Options for China Evergrande Group (EVG) have been suspended until further notice,” the Hong Kong Stock Exchange said in a statement, without listing a reason.
This is the first time that the shares of the company, once China’s top-selling developer, have been suspended.
Evergrande is currently the world’s most indebted real estate group with debts surmounting billions. It could face one of China’s largest-ever restructurings.
The latest development comes as a Chinese financial news service, Cailian, said Evergrande’s property management unit may be taken over by another major developer.
How much does Evergrande owe?
According to reports, Chinese regulators requested Evergrande avoid a near-term default on its dollar bonds and the nearly $83.5 million (€71.1 million) in dollar-bond interest payments due last month. At the same time, reports also said the central government had alerted local governments that the property giant could collapse.
The payments that were due were on a $2 billion offshore bond and a $47.5 million bond. Evergrande’s bonds would default if the company fails to settle the interest payment it owes within 30 days.
In total, the company owes $305 billion (€262.7 billion) in the next two years. Reports said Evergrande had stopped paying staff and factory suppliers in its electric vehicle unit.
What insolvency could mean
Uncertainty over Evergrande’s ability to meet its debt obligations signals the end of a freewheeling era of building with borrowed money. The risks to China’s real estate market down are considerable. The property market accounts for a quarter of Chinese GDP.
Experts say that the Chinese government knows that letting Evergrande go bankrupt could have serious consequences like social instability, massive layoffs and disgruntlement with the government.
A default on interest to foreign bondholders risks stifling macroeconomic growth.
A handful of real estate developers in China have already seen their ratings downgraded by agencies due to the uncertainty surrounding Evergrande and concerns over debt and repayment weighing on borrowing costs.
Debt bankers also report few companies are interested in extending credit to the market while uncertainty clouds the sector.
