Trading halted in Evergrande company shares following Hong Kong High Court’s order

Trading on Evergrande shares halted on Monday in Hong Kong following a high court decision mandating the liquidation of the troubled Chinese real estate developer. The suspension occurred around 10:18 AM local time, triggered by a sharp 20% decline in the stock amid volatile market activity. Additionally, affiliated entities such as Evergrande Property Services and Evergrande New Energy Vehicle Group also sought trading suspensions, as reported in filings with the Hong Kong exchange.

Overseas creditors of Evergrande were unsuccessful in reaching a last-minute restructuring agreement over the weekend, according to information from the Wall Street Journal.

Back in August China Evergrande Group had initiated a Chapter 15 bankruptcy protection filing in a New York court. This legal process safeguards the US-based assets of a foreign company as it undertakes efforts to restructure its debt obligations.

Since its debt default, Evergrande has been actively engaged in renegotiating its agreements with creditors in a bid to address its financial challenges. The company’s debt load, estimated to surpass USD 300 billion, had previously earned it the dubious distinction of being the most heavily indebted property developer globally. Trading of Evergrande shares has remained suspended since the previous year.

Chinese policymakers have been actively working to address the debt crisis in the troubled property sector. In the past week, the People’s Bank of China and the Ministry of Finance unveiled measures aimed at enhancing liquidity for property developers.

These measures, set to remain in effect until the end of this year, are intended to alleviate the persistent cash crunch faced by Chinese developers. The initiatives come as a response to Beijing’s crackdown on the sector, aimed at addressing bloated debt levels in real estate.

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Why is Evergrande in trouble?

Evergrande, through ambitious expansion fuelled by borrowing over USD 300 billion, emerged as one of China’s largest companies. In response to the increasing debt levels of major real estate developers, Beijing implemented new regulations in 2020 to exert control.

These regulatory changes compelled Evergrande to offer substantial discounts on its properties to generate cash flow and sustain its operations. Presently, the company is grappling with challenges in meeting the interest payments on its substantial debts. The resulting uncertainty has led to a staggering 99% decline in the value of Evergrande’s shares over the past three years.

In August of the previous year, Evergrande took the step of filing for bankruptcy in New York, aiming to safeguard its US assets as part of ongoing negotiations for a multi-billion dollar deal with creditors.

Business Overview

China Evergrande Group, formerly Evergrande Real Estate Group Limited, is principally engaged in property development. The company operates its business through four segments: Property Development, Property Investment, Property Management, and Other Businesses. The Other Businesses segment is engaged in property construction, the provision of hotel and other property development-related services, insurance, and fast-consuming products business. Through its subsidiaries, the company is also engaged in mineral water production and food production.

According to the company’s website, Evergrande Real Estate currently owns more than 1,300 projects in over 280 cities across China. The broader Evergrande Group encompasses far more than just real estate development. Its businesses span from wealth management to the production of electric cars and food and drink manufacturing. Additionally, it holds a controlling stake in what was once one of the country’s largest football teams, Guangzhou FC.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.