Tuesday, October 19, 2021

Evergrande Group’s high-flying share price increases after concerns over credit crunch

By Jude Toyat

Evergrande Group, one of China’s biggest developers, expressed confidence in its ability to beat refinancing difficulties and avoid a near-term default as the embattled firm issued a strongly worded statement to reassure its creditors.

Shares of Evergrande jumped 5.4% in afternoon trading on Thursday after the developer’s statement, which said it had identified cash flow and budget issues which it had not realised before.

The stock had lost nearly 4% in pre-market trading.

The Chinese government has intensified efforts to reduce the size of the country’s shadow banking system and choking overcapacity in the property sector, which is the biggest contributor to the nation’s massive debt mountain.

The restive property market, which made developers a source of intense public frustration, has been hit by two bouts of tightening measures imposed by the government in recent months.

Evergrande reported a net loss of 19.1bn yuan ($2.99bn) for 2017 last week, exceeding expectations, as it struggled with plunging sales.

With a market value of about $14bn, the firm is the biggest Chinese developer by size by market capitalisation, and has been one of the country’s most active in tapping foreign equity markets since 2008.

Evergrande issued a statement to the Hong Kong stock exchange, saying its business is currently undergoing big change and consolidation. The company said it is implementing a strategic plan for the medium term, after which it will raise necessary funds via new and secured loans.

It stressed that its senior management, debt and funding issues have been thoroughly disclosed, and that it does not intend to take any default or financing risk.

Evergrande’s repayment squeeze comes as the China Banking Regulatory Commission (CBRC) in January said that there was a “big chance” that the sector could see the first overdue debt repayments.

Evergrande has faced a slew of defaults, such as Lynas Corporation’s disastrous decision to allow itself to be sold short at a fraction of its true value by venture capital funds.

Lynas has since successfully restructured its debt pile.

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