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Teetering Chinese developer Evergrande makes shock move

·2-min read
China Evergrande has made a surprise move as it struggles with its huge debt. (Source: Getty)
China Evergrande has made a surprise move as it struggles with its huge debt. (Source: Getty)

Troubled Chinese mega-property developer Evergrande has suspended trading in Hong Kong as it continues to grapple with its US$300 billion debt burden.

In a filing to the Hong Kong Stock Exchange on Monday, the company said its trading halt was pending an “announcement containing inside information”. It did not provide any further details.

The company has been the subject of headlines for months amid concerns its failure to address its huge debt crisis would lead to a catastrophe in the Chinese property market and financial system.

The developer’s decision to halt trading came after local media reported it had been ordered to tear down 39 apartment blocks in Hainan province.

Local reports claimed the buildings had been constructed using an illegally obtained permit.

The buildings, which were part of a huge resort-style development dubbed Ocean Flower Island, had been under construction for eight years.

Additionally, the second-largest Chinese developer failed to make coupon payments worth US$225 million last Tuesday, after also failing to make payments on nearly $20 billion in international market bonds in December.

Both sets of payments have 30-day grace periods.

Evergrande shares lost 89 per cent over 2021, and on 9 December, Fitch Ratings declared the company to be in ‘restricted default’.

The company, which is now the most indebted in the world, is not the only Chinese developer struggling to meet repayments, with peers Kaisa and Fantasia also in financial trouble.

However, analysts remain convinced Evergrande’s failure will have limited fallout.

“Our view is that a shake-up in the Chinese property-development sector will have a meaningful supply-chain impact on the country’s economy but the fallout will be manageable and contained,” Desmond Soon and Jie Peng of Western Asset Management said in December.

“The key risk for the Chinese economy is not the collapse of these companies [including Evergrande, Fantasia and Kaisa] but a tightening of lending for the entire sector. This would significantly impact China’s long economic supply chain.

“Our view is that the Chinese authorities are highly cognisant of this fallout risk and have macro levers to pull should there be a need for countercyclical measures.”

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