China Evergrande Group’s shares plunged 79% on Monday after they resumed trading, as investors continued to worry about the company’s ability to repay its debts.
The developer, which is at the centre of a crisis in China’s property sector, saw its market capitalization shrink to just $586 million. Evergrande needs approval from more than 75% of its creditors to approve its debt restructuring plan.
The company has said it will postpone meetings for these creditors to vote on the proposal to give more time “to maximise creditor engagement and support informed-decision making”. The scheme meetings will now take place on September 26, instead of Monday.
Experts predict uncertainty ahead
Steven Leung, Hong Kong-based director of UOB Kay Hian, said that “going forward things will continue to be difficult for both its operations and share performance”.
He added that there is “little hope that Evergrande can rely on selling houses to repay debt because homebuyers would prefer state-owned developers, and it won’t be able to benefit from stimulus policies.”
China’s economic woes
The deepening debt crisis in the property sector has weighed on the recovery of China’s economy, putting more pressure on policymakers to roll out stimulus measures. The government has so far relaxed residential housing loan rules and supported affordable housing, briefly cheering investors.
However, China’s new home prices will likely show no growth this year, according to a Reuters poll.
Evergrande’s trade resumption also came after the developer on Sunday reported a narrower net loss for the first half of the year due to a rise in revenue. The company posted a combined net loss of $81 billion for 2021 and 2022 in a long-overdue earnings report last month, versus an 8.1 billion yuan profit in 2020.
As with Evergrande’s previous two annual financial statements, auditor Prism Hong Kong and Shanghai have not issued a conclusion on this report, citing multiple uncertainties relating to the business as a going concern.