October 4, 2021

Shares of Evergrande and property unit suspended in Hong Kong

By ellen

HONG KONG (REUTERS, BLOOMBERG) – Trading in shares of China Evergrande Group was suspended on Monday (Oct 4) after the debt-laden company missed a key bond interest payment last week, its second offshore debt obligation in a week, with market watchers jittery as the group’s troubles unravel.

Shares of its unit, Evergrande Property Services Group, were also suspended, according to the Hong Kong Stock Exchange.

With its liabilities equal to 2 per cent of China’s gross domestic product, Evergrande has sparked concerns that its woes could spread through the financial system and reverberate around the world, though worries have eased somewhat after the central bank vowed to protect home buyers’ interests.

No reason was given for the halts on Monday, with shares of another unit, China Evergrande New Energy Vehicle Group, still trading in Hong Kong.

People familiar with the matter have said that a dollar note maturing on Oct 3 issued at an initial amount of US$260 million (S$353 million) by an entity called Jumbo Fortune Enterprises is guaranteed by Evergrande, according to Bloomberg.

As the maturity date falls on a Sunday, the effective due date is Monday. The issuer is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit. 

Non-payment of the bond principal would constitute a default as the note has no grace period, although five business days would be allowed if failure to pay is down to administrative and technical errors, according to the people.

Details of the guarantees were not broadly known as the note prospectus is not publicly available and the deal was not listed on exchanges. Monday is a holiday in China.

Uncertainly over the full extent of Evergrande’s debt load, beyond its more than US$300 billion reported in liabilities, has plagued investors since a liquidity crisis at the firm stoked fears of a collapse that could trigger financial and economic contagion. 

The authorities, ranging from United States Federal Reserve officials to Hong Kong’s central bank, are looking into just how exposed financial institutions are to the crisis.

Ms Becky Liu, Standard Chartered Bank’s head of China macro strategy, expects Evergrande to have more structured products such as guaranteed bonds, similar to the Jumbo Fortune note, with offshore dollar bonds making up just 6 per cent of the firm’s total reported liabilities.

Cross-guarantees have been a problem for China over the past decade with the rise of shadow banking, said Mr Andrew Collier, managing director of Orient Capital Research in Hong Kong.

“There is little ability to find out the size of the problem until there is a debt blow-up and creditors worry about not getting paid,” he added.