Evergrande shares: Will the sell-off continue?

• Evergrande (HK: 3333) share price tumbles to HK$2.27
• Its cash situation could worsen due to a ‘significant’ drop in property sales
• The group again warned it might default on its enormous debts
• Keen to take advantage of Evergrande’s falling share price? Open an account with us to take a short position on the stock today.

Evergrande stocks crash further

Shares of the world’s most indebted property developer, China Evergrande Group, has continued to sag amid its escalating troubles.

Over the past week, the stock plunged 29.8% to finish at HK$2.54 last Friday, after Evergrande warned of a ‘significant continuing decline in contract sales in September’.

The shares fell deeper into the red this week, shedding 10.2% on Monday and another 0.4% to a 10-year low of HK$2.27 on Tuesday.

Two units that Evergrande is trying to sell - China Evergrande New Energy Vehicle and Evergrande Property Services - likewise saw their shares falling 46.2% and 2.1% respectively over last week.

With more than US$300 billion in liabilities, Evergrande is struggling to remain liquid and racing to raise funds to pay its numerous lenders and suppliers.

This Thursday (23 September 2021), a bond interest payment of US$83.5 million will come due. It was also supposed to repay interest on some bank loans on Monday.

On Saturday, one of the group’s units said on WeChat that it had started using real estate to repay investors in its wealth management products. Reuters noted that these wealth-management investors may choose from discounted apartments, office, retail space or car parks for repayment.

Evergrande’s debt crisis has been unsettling investors in Asia, prompting concerns about whether its potential default could spill over to other parts of the economy. The sell-off is spreading to shares of Chinese banks and insurers, CNN said.

DBS analysts wrote on Wednesday that the market turmoil surrounding Evergrande intensified recently, ‘as investors interpreted the government’s silence hitherto on the distressed firm as a lack of official support’.

Evergrande flags again it could default on its debts

The embattled developer said in a filing last week that its property sales will likely continue to post a ‘significant’ drop in September as negative media reports have dampened potential buyers’ confidence. These sales have been declining steadily since June.

Evergrande therefore expected a ‘continuous deterioration of cash collection’, which would ‘place tremendous pressure on the group’s cashflow and liquidity’.

Evergrande again said that it could default on its debts, reiterating a warning it gave two weeks prior. It also flagged to investors that its difficulties and uncertainties in improving its liquidity could lead to broader default risks.

According to UBS estimates, Evergrande holds about 6.5% of the total debt in China’s property sector.

Goldman Sachs analysts highlighted ‘rising risks’ from China’s property market. ‘Concerns over Evergrande are rising and signs of financing difficulties spreading to other developers are emerging,’ they wrote on Sunday.

The Chinese government has to ‘carefully manage’ Evergrande's potential default or restructuring, while delivering a clear message to help ‘shore up confidence and to stop the spillover effect,’ Goldman Sachs added.

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