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Evergrande Shares Rise, but Loan Woes Remain to be Resolved

Stock MarketsJul 22, 2021 12:35AM ET
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By Gina Lee – China Evergrande Group stocks soared, even as four of Hong Kong’s largest banks stopped providing mortgages to buyers of the company's unfinished apartments in the city and pressure mounts on founder Hui Ka Yan.

Evergrande's Hong Kong shares (HK:3333) were up 9.25% at HK$7.91 ($1.02) by 12:30 AM ET (4:30 AM GMT), even as its offshore notes due 2025 fell 2.6 cents on the dollar to 46.8 cents towards a record low as of 9:37 PM ET.

HSBC Holdings Plc (LON:HSBA), Bank of China Ltd.’s Hong Kong unit, Hang Seng Bank and Bank of East Asia (OTC:BKEAY) were reportedly among lenders that suspended new mortgages for two Evergrande projects currently under construction. The Industrial & Commercial Bank of China (OTC:IDCBY) (Asia) is reportedly also on the list.

“It’s pretty clear that the market has already lost confidence, judging by both equity and bond prices,” said Jennifer James, a portfolio manager of emerging-market credit at Janus Henderson Investors, told Bloomberg.

“However, the company still has options,” said James, who holds a “tiny” position in Evergrande bonds. “In order to restore confidence, they need to accelerate asset sales and/or bring in a strategic investor.”

Evergrande said in a statement on Wednesday its relationships with many banks in Hong Kong means local operations will not be impacted. The developer remains confident that it can complete its Emerald Bay II development in August 2021 as scheduled and the Vertex (NASDAQ:VRTX), its second project in Hong Kong, is targeted to finish by the end of October 2021.

Other options currently open to the company are accelerating asset sales or securing a bailout from the Chinese government. The government has made efforts in recent years to rein in moral hazard, but Evergrade could be a case of ‘too big to fail’. Although authorities have so far kept quiet about their plans, they could step in to control the mess.

“Evergrande’s liquidity is increasingly and from all fronts under pressure... this could pave the way for some form of restructuring or debt extension talks sooner than later,” SC Lowy chief executive officer Michel Lowy told Bloomberg.

On a more positive note, the company said earlier in the day that it resolved its legal dispute with China Guangfa Bank over an overdue CNY132 million, or $ 20.38 million, loan and that the two sides will deepen business cooperation.

Evergrande Shares Rise, but Loan Woes Remain to be Resolved

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