On Oct. 4, Evergrande halted trading of its shares on the Hong Kong Stock Exchange (HKSE) pending a “major transaction,” which some believe involves Chinese state companies buying up portions of the firm’s assets.
Evergrande Property Services Group, a spin-off of the company that was listed last year, has also stopped trading due to “a possible general offer for shares of the company.”
With more than $300 billion in liabilities, China’s Evergrande Group is the world’s most indebted property development company. Markets around the world are closely monitoring the firm’s activities as a failure to repay debts could affect banks, suppliers, homeowners, and investors.
Evergrande has nearly $20 billion in offshore debt. Bondholders have complained that the company has missed out on its interest payments that were due in the past few weeks. Evergrande’s liabilities account for around two percent of China’s gross domestic product (GDP). U.S. Secretary of State Antony Blinken hopes that China will act “responsibly” regarding the matter.
“China has to make sovereign economic decisions for itself, but we also know that what China does economically is going to have profound ramifications, profound effects, on literally the entire world because all of our economies are so intertwined… So certainly when it comes to something that could have a major impact on the Chinese economy we look to China to act responsibly and to deal effectively with any challenges,” Blinken said in an interview with Bloomberg Television in Paris on Oct. 6.
The crisis in the Chinese real estate market is not limited to Evergrande. There are other real estate firms in China that are also struggling financially.
Fantasia Holdings Group Company Limited, a developer that specializes in luxury apartments, missed a $206 million international market debt payment, triggering a default. It also failed to repay an $109-million loan taken from another property company. The firm had asserted that there was “no liquidity issue” just weeks earlier. Trading of Fantasia shares was suspended on Oct. 5.
The default by Fantasia has left investors flustered as it is a first on a dollar bond since the Evergrande crisis unfolded. The company has also been downgraded by rating agencies. On Monday, Fitch Ratings downgraded Fantasia’s ratings from “B” to “CCC-.”
“We believe the existence of these bonds means that the company’s liquidity situation could be tighter than we previously expected. The late payment also raises doubts about the company’s ability to repay its maturities on a timely basis. Furthermore, this incident casts doubt on the transparency of the company’s financial disclosures,” Fitch wrote on its website.
S&P Global Ratings downgraded developer Sinic Holdings due to a “severe liquidity problem” as the company failed to honor interest payments on offshore loans. The firm might also potentially fail to pay notes amounting to $246 million by October 18, warned the rating agency.
“Since the Evergrande crisis, investors have become more worried and focused about Chinese developer’s repayment ability,” Thomas Kwok, head of equity business at Hong Kong brokerage CHIEF Securities, told Reuters.
Accounting for nearly 25 percent of China’s GDP, the real estate sector has been a key driver of the Asian giant’s economic growth. Any crisis in the sector will inevitably have a large impact on the Chinese economy.