Evergrande shares: Will the sell-off continue?
Cash-strapped property giant China Evergrande Group faces potentially devastating debt defaults.
- 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.
Feeling bearish about Evergrande shares?
CFD trading is a way of speculating on financial markets that doesn’t require the buying and selling of any underlying assets.
Opening an account with IG is free and simple. You'll get access to over 16,000 international share CFDs.
When you’re ready to open a position, you can add stops and limits to manage your risk. As a new trader you’ll also get lower minimum deal sizes for two weeks.
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.