Shares in China Evergrande fell sharply as the company’s stock resumed trading on Thursday after the Chinese real estate developer disclosed that a plan to sell its property services division had collapsed.
Evergrande’s Hong Kong-listed stock closed down 12.5 per cent after the end of the two-week trading suspension, while shares of affiliate Evergrande Property Services, which were also frozen during the same period, fell 8 per cent.
Shares in Evergrande New Energy Vehicle, the developer’s electric vehicle subsidiary which has traded in Hong Kong without interruption in recent weeks, fell as much as 14 per cent but pared losses to finish 2 per cent lower.
Evergrande, the world’s most indebted property developer, had halted trading in its shares and those of its property services unit on October 4. Evergrande Property Services advised in an exchange filing at the time that it was expecting a “possible general offer” for its shares.
During the share suspension, Evergrande did not comment on the outlook for the transaction, or on five missed payments to international bondholders totalling $275m.
The developer broke its silence late on Wednesday, revealing that a deal to sell 50.1 per cent of the property services division to Hopson Development Holdings for HK$20bn ($2.6bn) had been terminated last week.
Evergrande’s stock price has dropped more than 80 per cent this year, with falls across the group’s three Hong Kong-listed businesses representing a total loss of more than $57bn in market capitalisation.
“You have to bear in mind this stock is simply not investment grade at this moment and the default risk is getting higher,” said Dickie Wong, head of research at Kingston Securities. “If you hold [Evergrande] you need to dump it immediately. That’s my only suggestion at this point.”
Evergrande said the deal had been halted because it “had reason to believe” that the purchaser had “not met the prerequisite” to make an offer. Hopson said in a filing that it was “prepared to complete the sale” but was unwilling to pay directly for the unit until obligations between the latter and Evergrande were settled.
Evergrande, which faces liabilities of more than $300bn, has struggled to deal with a liquidity crisis that has spurred concerns over the health of China’s real estate industry.
The disclosure and request to resume trading came on the same day that the Financial Times revealed Evergrande’s stock suspension had helped push the value of Hong Kong-listed stocks under a trading halt to a record high of more than $61bn, raising investor concerns about corporate governance on the exchange.
Evergrande also addressed its string of missed payments, the first of which on September 23 triggered a 30-day grace period that expires on Saturday.
Evergrande said on Wednesday that the grace period had “not yet expired” and that other than the sale of a stake in a regional Chinese lender, “there has been no material progress on the sale of assets of the group”.
Since Evergrande’s first missed payment, yields on dollar bonds for Chinese issuers have soared to the highest level in more than a decade, while developers Fantasia and Sinic Holdings have defaulted on bonds worth a total of $452m.