HONG KONG - Shares of China Evergrande Group slumped as much as 13.6% as they resumed trading in Hong Kong on Thursday after a three-week halt, as the debt-strapped developer sought unsuccessfully to sell a controlling stake in its property management business.
The collapse of talks to sell the 50.1% stake in Evergrande Property Services to Hopson Development Holdings for 20.04 billion Hong Kong dollars $2.58 billion revealed in an exchange filing late Wednesday evening, ratchets up the odds that Evergrande will default on an offshore bond later this week.
Evergrande, which is struggling with over $300 billion in debt, indicated that it had not made progress on other asset sales, either, as a 30 day deadline to make good on a missed bond coupon payment looms on Saturday.
There has been no material progress on sale of assets of the group, Evergrande said. In view of the difficulties, challenges and uncertainties in improving its liquidity, there is no guarantee that the group will be able to meet its financial obligations. Shares of the world's most indebted developer fell as low as HK $2.55 on Thursday morning from their previous close of HK $2.95. They ended the morning session at HK $2.63.
Hopson fell as much as 10.2%, closing the session down 6.5%, while Evergrande Property Services gained 5.2%.
Since September, the company has failed to pay bond coupons worth $277 million. Its shares and bonds have lost four-fifths of their value this year.
Evergrande's travails have roiled global markets as investors try to gauge the fallout from a possible collapse of the company and fret over the broader health of the leveraged Chinese property market.
The company is quickly running out of cash and had hoped to get past the latest crisis by selling assets, attracting investors and boosting sales. It is failing on all three counts and has missed payments to banks, retail creditors, contractors, bondholders and suppliers, which has led to the suspension of more than half of its 800 ongoing development projects.
Contracted sales, a key source of liquidity, plunged to 3.65 billion yuan $571 million in the period Sept. 1 - Oct. 20, the company said on Wednesday. That compares with over 142 billion yuan in sales in the same period last year.
Chinese authorities have refused to bail out the developer, declaring instead that spillover risks can be contained.
Vice Premier Liu He told a Beijing forum on Wednesday that Evergrande risks are controllable and that reasonable capital demands from property companies are being met, according to a report by the official Xinhua News Agency. However, Evergrande's woes, and missed payments by smaller rivals, have sparked fears of contagion across the $50 trillion Chinese financial system in recent weeks.
S&P Global Ratings last month estimated that developers it rates are due to redeem 480 billion yuan in domestic and offshore bonds over the next year, equal to almost a fourth of their free cash reserves. The first big slug of maturities is set to come in January, with some $6.2 billion in offshore bonds due for repayment, according to brokerage CGS-CIMB.
Smaller developers Sinic Holdings and Fantasia Holdings Group have already defaulted, while a few others are struggling to repay.
Modern Land China said on Wednesday evening that it would abandon a proposal to extend repayment on a $250 million bond by three months despite continuing liquidity challenges, then put a halt to trading of its stock pending another announcement. It said it is seeking financial advice.