Evergrande is increasingly wobbly and is frightening the markets. The shares of the Chinese real estate giant, which to date has still further 300 billion in liabilities, fell 22% on the Hong Kong stock exchange after the company announced it was unable to issue new bonds due to an ongoing investigation into one of its subsidiaries, Hengda Real Estate Group. A stop that puts the restructuring plan announced in March at risk and is fundamental for the very survival of Evergrande.
Evergrande and the investigation into Hengda
Its decision to cancel a scheduled meeting with creditors and external sources contributed to weighing on the real estate group's shares difficulties for the subsidiary Hengda, as part of its debt restructuring plan which also includes the issuing of new bonds.
“In view of the fact that Hengda Real Estate Group, one of the main subsidiaries of the company, is under investigation, the group is unable to meet the requirements for the issuance of new bonds in the current circumstances,” Evergrande said in a statement released last night.
In August, Hengda Real Estate said it was being investigated by China's securities regulator on suspicion violation of the law on disclosure of information. As of the end of July, Hengda Real Estate's unpaid debts totaled approximately 277,5 billion yuan, with 1.931 lawsuits pending.
Evergrande: “The restructuring plan is blocked”
“The debt restructuring plan he is now blocked and can go no further” – Steven Leung, sales director of UOB Kay Hian in Hong Kong, commented to Reuters -. “Other options, such as converting debt into shares of other listed subsidiaries, are also not considered viable at the moment.”
“Concern over the financial health of real estate groups still clouds the sector, especially smaller companies with a high level of debt, but very few real estate projects on hand,” Leung said.
In this context it should be remembered that last week the police have arrested some employees of the Evergrande Wealth Management financial division, causing the group's shares to collapse in that case too and increasing pressure on the Shenzhen group's restructuring plans.
Earlier this month, Evergrande said it had postponed a decision on its offshore debt restructuring until October to allow holders of its debt more time to consider its proposal. Evergrande needs theok of more than 75% of creditors of each class to approve the plan, which offers rights holders a basket of options to exchange debt for new bonds and equity-linked instruments backed by its shares and those of the securities of its Hong Kong-listed subsidiaries.
