Shares of China’s Evergrande plunge 12% as it nears default on Evergrande

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Troubled Chinese real estate developer Evergrande has seen its shares plunge to an 11-year low after strong indications it is on the verge of a catastrophic default and could be forced into a full restructuring.

The company has gone from crisis to crisis in recent months as it faced a series of debt repayments — three times waiting for the last possible moment to mobilize the cash needed to stay afloat.

But a statement from the company over the weekend said there was “no guarantee” that the group could meet its obligations and added that creditors had demanded a total of $260m (£196m) to be paid immediately.

The most pressing issue is how to pay the $82.5 million owed on Monday – a deadline that was pushed back 30 days when it failed to meet the commitment by the due date in November.

“Since September 2021, the Group has been seriously reviewing its capital structure and liquidity situation with the help of its financial and legal advisors, evaluating all available strategic options, and maintaining an ongoing dialogue with external creditors,” the statement said.

“In light of the current liquidity situation of the Group, there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations… The Company has received a request to perform its obligations under a guarantee in the amount of approximately US$ 260 m. In the event that the Group is unable to meet its guarantee obligations or some other financial obligations, this may lead to the creditors being asked to speed up the payment.”

There have been reports that its billionaire founder Xu Jiayin has been summoned by officials to explain the statement, and the Guangdong provincial government has said it will send a team to Evergrande “to oversee and enhance the enterprise’s risk management.”

The constant stream of bad news sent shares of China Evergrande Group down 12% in Hong Kong on Monday. They now stand at 1.98 Hong Kong dollars ($0.2540), the lowest level since May 2010.

Evergrande was once the best-selling developer in China, but is now grappling with more than $300 billion in commitments, meaning the meltdown could spread to the real estate sector and beyond.

Analysts have warned that a third of Chinese developers could face a similar crisis as the country’s bloated housing market stagnates after a crackdown on reckless borrowing by the Xi Jinping government in Beijing.

On Monday, a smaller developer, Sunshine 100 China Holdings Ltd., defaulted on $179 million in debt and interest payments that were due on Sunday.

The company said in a stock exchange filing that the default was due to “liquidity issues arising from the negative impact of a number of factors including the macroeconomic environment and the real estate industry.”

Sunshine 100 has repeatedly struggled to meet its debt obligations this year and also defaulted on bond payments in August. The company now has $385 million in dollar notes outstanding, according to data compiled by Bloomberg.

Investors are also concerned about a possible default by Kaisa Group Holdings Ltd, which faces a $400 million bond maturity on Tuesday because it failed to secure a debt swap that would have given it crucial time to repay some of its bonds. After Evergrande, it owes more to foreign bondholders, with debts of $12 billion.

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