Debt-laden China Evergrande shares drop 14% to four-year lows

The Evergrande Group, or Evergrande Real Estate Group, a Chinese real estate company logo can be seen on a smartphone and PC screen.

SOPA pictures | LightRakete | Getty Images

BEIJING – Hong Kong-listed China Evergrande Group stocks fell to a four-year low on Tuesday after news of an asset freeze broke that raised awareness of the real estate conglomerate’s debt problems.

Evergrande stock was down more than 14% on Tuesday lunchtime, after falling 16.2% the day before.

The decline has wiped China Evergrande’s shares by around 37 billion Hong Kong dollars ($ 4 billion) since Friday, giving it a market value of about 93 billion Hong Kong dollars (nearly $ 12 billion), according to Wind Information .

China Evergrande’s stocks have fallen more than 60% in the past 12 months as Chinese authorities tried to cool the country’s hot real estate market with new restrictions, particularly on lending to real estate companies.

The latest stock decline followed news that in early July a local court in Jiangsu Province ruled that a branch of China Guangfa Bank had withdrawn 132.01 million yuan ($ 20.6 million) in deposits from Evergrande Real Estate and its subsidiary Yixing Hengyu Real Estate could freeze.

The verdict was announced last Tuesday but, according to Reuters, only caught the market’s attention on Sunday evening.

Evergrande said in a statement Monday that Hengyu had a 132 million yuan loan from the bank in question, due next year on March 27th. The company said it would sue the bank, according to a CNBC translation of the Chinese text.

“I’m not that concerned,” said Henry Chin, Global Head of Investor Thought Leadership and Head of Research Asia Pacific at CBRE, to CNBC’s Martin Soong in the Squawk Box Asia.

Chin pointed to news in the past few days that showed him the Chinese government can take better control of commercial real estate debt.

Citing sources, Reuters reported Friday that Chinese regulators are demanding monthly disclosures from property developers on a form of debt called commercial paper. The report says Evergrande is the largest issuer, whose primary real estate group held 205.7 billion yuan ($ 32 billion) of commercial paper last year, up 390% from 2015.

Read more about China from CNBC Pro

The obligation to regularly disclose commercial paper debt will reduce the likelihood of unexpected shocks from property developers, Chin said. He expects Evergrande to follow other real estate developers in selling non-core assets to pay off their debts and improve their financial situation.

Evergrande was founded as a real estate developer in the late 1990s.

In recent years, the company has risen to Fortune’s Global 500 rankings, expanding into industries such as film and entertainment, life insurance, and spring water. Evergrande supports the Guangzhou soccer team.

The conglomerate’s new energy car unit – which also includes electric cars – has announced ambitious annual production targets of 1 million vehicles by 2025 and 5 million by 2035.

Comments are closed.