Caixin
Aug 19, 2021 10:35 PM
FINANCE

Update: Debt-Ridden Evergrande’s Stock Slides After Regulatory Talk

The headquarters of Evergrande Group in Shenzhen, South China’s Guangdong province, on Feb. 9. Photo: VCG
The headquarters of Evergrande Group in Shenzhen, South China’s Guangdong province, on Feb. 9. Photo: VCG

The stock of debt-ridden China Evergrande Group fell after two financial regulators summoned the property giant’s senior management for a talk, which some market participants interpreted as a serious warning to the company.

The conglomerate’s Hong Kong stock closed down 1.6% on Friday.

On Thursday, the People’s Bank of China and the China Banking and Insurance Regulatory Commission directed Evergrande to “maintain stable business operations” and “resolve debt risks” as they summoned (link in Chinese) its senior management for a meeting.

They also ordered Evergrande to disclose significant issues without disseminating inaccurate information, and to clarify misinformation in a timely manner.

The summoning shows the regulators are serious about Evergrande’s debt risks and do not want a spillover of the risks, some market participants told Caixin. “The regulators should be mainly urging Evergrande to speed up disposal of assets, in the hope that the company will lower leverage in a proactive and smooth manner,” a person engaged in the real estate financing business at a foreign bank told Caixin.

The summoning of the executives comes as the conglomerate remains embroiled in a debt and liquidity crisis, with its access to funding severely curtailed after regulators moved to curb debt levels in the real estate industry.

Investors have sold off the company’s stock and bonds over the past months, and the developer has been sued by creditors and suppliers over missed bill payments. The troubled company has recently been offloading assets in an attempt to raise cash to repay debt.

Meanwhile, news about its talks with potential buyers of its equities in key listed subsidiaries led to fluctuations in their share prices.

Shares of two of Evergrande’s Hong Kong-listed subsidiaries — Evergrande Property Services Group Ltd. and China Evergrande New Energy Vehicle Group Ltd. — jumped last Wednesday after the parent said it’s in talks to sell stakes in the two companies. That day, Evergrande CEO Xia Haijun sold part of his stakes in the two units for about HK$116 million ($18 million).

On Thursday, it was reported that Evergrande is in talks with smartphone-maker Xiaomi Corp. to sell a stake in its electric-vehicle (EV) unit. Evergrande then said (link in Chinese) in response that the EV subsidiary did hold preliminary talks with Xiaomi when seeking strategic investment, but did not have further communications.

Based on Evergrande’s recent behavior, the regulators’ order to the company to stop disseminating inaccurate information and to clarify misleading information is nothing but a serious warning, a private equity industry insider said on condition of anonymity.

Evergrande said in a Friday statement (link in Chinese) that the group will fully implement the requirements mentioned in the regulators’ talk, and disclose information on crucial matters in accordance with the law and regulations, adding that it will do its best to maintain the stability of the company’s operations and resolve debt risks.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) 

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