A gloomy development for distressed Chinese property developer
Evergrande
Group has catalyzed the latest bout of worries over the world’s second-largest economy.
Concerns over an economic slowdown in China have rattled global markets in recent months, with weakness in the sprawling and highly indebted real estate industry being a particular pain point. Now, a debt restructuring at
Evergrande
(ticker: 3333.H.K.), whose descent into debt distress two years ago marked the start of pressures from the property sector, looks to be in jeopardy.
Evergrande said in a Hong Kong filing last Friday that it would not hold expected meetings with creditors on Monday and Tuesday over a proposed restructuring, with a filing on Sunday revealing that the company cannot issue new debt. Due to an investigation by regulators into its Hengda subsidiary, Evergrande does not meet the qualifications to issue new notes, the group said.
“The sprawling real estate giant Evergrande has run into a roadblock in its attempts to restructure its debt, with expectations of new restructured debt being issued now scuppered,” said Susannah Streeter, an analyst at broker Hargreaves Lansdown. “There had been hopes that intricate financial engineering will stop the property sector’s woes from overflowing to other sectors, but doubts have crept back in about the long-term effectiveness of this tinkering.”
Shares in Evergrande tumbled 21.8% in Hong Kong trading on Monday. Other property stocks also suffered, with
Country Garden
(2007.H.K.) down 7.7%.
But real estate stocks were not the only casualty. U.S.-listed shares in e-commerce and cloud computing group
Alibaba
(BABA) shed 2.4% in premarket trading, with
JD.com
(JD) stock down 3.1%, firmly outpacing declines across futures tracking the
S&P 500.
Hong Kong’s Hang Seng Index fell 1.8% on Monday, with trading across Asia under pressure as China worries loomed large.
Both Alibaba and JD.com, with core businesses in e-commerce, are highly sensitive to the health of Chinese consumers and the wider economy. Systemic issues in the real estate space have emerged as a key threat to economic growth—as well as personal wealth as property prices fall—and have the power to move around even tech stocks. And, so far, government attempts at stimulus have mostly been met with a shrug.
“The deep problems in the Chinese property sector have bubbled to the surface again provoking fresh unease about the structural faults running though the world’s second largest economy,” said Streeter.
Write to Jack Denton at [email protected]
Read the full article here
