As the new debt payment deadline approaches, Evergrande’s stock price plummets

China Evergrande Group, the world’s most indebted real estate developer, faced another formal default on Monday night, as the 30-day grace period for repayment of US$82.5 million in debt due in November is coming to an end.

Earlier on Monday, the group’s stock price plummeted in its first transaction after Friday’s disclosure, due to concerns that it would be unable to fulfill its $260 million guarantee obligation and that its chairman has been subpoenaed by regulators.

Evergrande’s Hong Kong-listed shares fell 19.6% from last Friday’s close to HK$1.81 (US$0.23), a record low.

Chinese regulators try to assure domestic and foreign investors that they can control Evergrande’s influence. After the market closed, the central bank stated that it would release 1.2 billion yuan (US$188 billion) of liquidity for the banking system by reducing the proportion of reserves that financial institutions must hold by 50 basis points, and increase monetary stimulus for a slowing economy .

According to official media reports, although the People’s Bank of China said it would not “overwhelm” the economy with stimulus measures, the Politburo of the Communist Party of China pledged to maintain an active and “flexible” fiscal policy in the coming year.

Zhu Chaoping, an asset management strategist at JPMorgan Chase, said that the interest rate cut reflects the government’s desire to “stroke a balance between short-term stability and long-term reform.”

Evergrande said on Friday night that it had received a request related to its US$260 million guarantee, but did not provide more details. It is not clear whether Evergrande has previously disclosed the guarantee or when it should be paid.

In its mid-term annual report released in August, Evergrande stated that it has provided a total of 557 billion yuan (US$87.4 billion) in financial guarantees on behalf of home buyers and business partners.

Evergrande, whose debt crisis began to spiral out of control September, There will be at least four bond repayments before the end of February, with a total of 610 million U.S. dollars. The two largest payments were 255 million U.S. dollars and 235 million U.S. dollars, which were due on December 28 and January 24, respectively. The 30-day grace period for coupon payment of $82.5 million will expire on Monday.

In its announcement on Friday, Evergrande did not specify what the $260 million guarantee is related to, but it warned that if the guarantee cannot be fulfilled, it “may cause creditors to demand accelerated repayment” of other debts.

In September, the Shenzhen-based developer was forced to restructure the repayment of retail customers who purchased the group’s high-yield investment products. It also proposes to reward investors and suppliers with completed apartments instead of cash.

Evergrande later missed the initial bond payment deadline, but in each case was able to fulfill its obligations before the end of the subsequent grace period, avoiding a formal default.

Soon after Evergrande’s statement on Friday, the People’s Bank of China reiterated its previous criticisms of the company’s management, accusing it of “mismanagement” and “blind expansion.”

In addition to summoning Xu Jiayan, chairman of Evergrande, on Friday, the Guangdong Provincial Government also sent people to the group headquarters to supervise finances.Huishi wealth In the past year, it has fallen by more than 70% to US$11 billion.

Property price In recent months, the population of many large cities in China has stabilized or declined-a welcome event for the officials who are now responsible for implementing President Xi Jinping’s new “shared prosperity” policy agenda aimed at reducing social inequality. develop.

However, it is estimated that China’s real estate industry accounts for as much as one-third of the total economic output, and there is growing concern that the growth rate of the world’s second largest economy may be less than 5% next year.

need Urban plot The sharp decline in recent months threatens an important source of revenue for local governments, which are also struggling to fund infrastructure investments that promote growth.

“The biggest growth headwind will be the real estate downturn,” said Larry Hu, chief China economist at Macquarie. “The collapse of the real estate industry has brought a significant risk of contagion to the Chinese economy.”

The Communist Party of China will hold its annual economic planning meeting in the coming weeks. Policymakers are expected to approve some easing measures at the meeting to moderate growth, but in addition to continue to strictly monitor the leverage restrictions imposed on real estate developers last year.

Additional reporting by Xinning Liu in Beijing

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