Evergrande stock on the edge of a precipice: Impending collapse stirs panic

Evergrande Group's shares plummeted once more on Wednesday amidst increasing concerns surrounding the possibility of the company's liquidation. As the symbol of China's property crisis, the beleaguered developer's stock ended the day with a 19% drop, at 32 Hong Kong cents (equivalent to 4 US cents), resulting in a market capitalization of merely 4.2 billion Hong Kong dollars ($539 million). With this latest decline, the losses for this week have reached 42%. Since its peak in October 2017, the company's value has plummeted by a staggering 99.9%.

Evergrande's troubles deepened this week with a warning that its offshore debt restructuring plan may face difficulties due to a regulatory investigation into its main subsidiary in mainland China. This warning follows news of Chinese police launching a criminal probe into Evergrande, a company that defaulted on its debt almost two years ago.

Investors found some relief last month when Evergrande reported a significant reduction in its losses for the first half of the year. The company attributed this improvement to increased revenue resulting from a brief upturn in China's property market earlier in the year.

However, the subsequent news has been consistently negative, leading to a rise in the number of investors considering liquidating the company if it fails to devise a new survival strategy promptly. Jun Rong Yeap, a market analyst at IG Group, explained that investors are increasingly concerned about the heightened risks associated with Evergrande's possible liquidation.

Hobbling the economy

Previously Chinas second biggest real estate company, Evergrandes default in 2021 ignited a crisis in the property sector that continues to weigh on the wider economy.

Evergrande is currently working on a government-monitored debt reorganization, with a total debt of $328 billion at the end of June. To resolve its financial obligations, the company has proposed a multi-billion dollar strategy to reconcile with its global creditors. As part of this ongoing endeavor, Evergrande has sought bankruptcy protection in the United States.

In the event that the restructuring attempts falter and Evergrande fails to negotiate a fresh agreement with its creditors, the company might be subjected to liquidation. This would involve the sale of its assets and a complete cessation of all its operations.

Evergrande had to cancel its meetings with creditors planned for this week due to weaker-than-expected recent sales. Investors are primarily concerned about the effectiveness of Beijing's measures to boost housing demand and their potential impact on growth, according to Frederic Neumann, HSBC's chief Asia economist.

According to him, the current outcomes are varied and additional adjustments to China's housing market measures, such as reducing mortgage rates, may be necessary to stabilize both sales and the entire sector. Given the magnitude of the property industry, unless there is a significant recovery, which seems improbable at the moment, the overall economic growth is expected to be considerably lower compared to previous decades.

Marc Stewart contributed reporting.