China Evergrande Become a “Penny Stock” After a Free Fall of Stock Price

BEIJING, August 29 (TiPost) — Lady Luck has once again favored Hui Ka Yan, although this time the “favor” is mixed.

On Monday, China Evergrande (03333.HK), which had been suspended for 525 days, resumed trading on the Hong Kong Stock Exchange, with just over ten days left before the 18-month suspension deadline.

Although trading resumed, the company’s stock price, unsurprisingly, experienced a nearly 80% plunge and became a “penny stock”.

As of the close of the trading day, China Evergrande’s stock price closed at HK$0.35, a drop of 78.79%. The company’s current market value is approximately HK$4.622 billion, a decrease of over HK$17.1 billion from the market value of approximately HK$21.787 billion before the suspension.

Over 17 Months of Suspension

On March 21 of last year, China Evergrande was suspended from trading due to the inability to issue its annual performance report, and prior to this, the company had already been mired in a severe debt crisis.

According to the company’s 2022 annual report disclosed in mid-August, as of the end of 2022, China Evergrande had approximately RMB 230.1 billion in revenue, a net loss of approximately RMB 125.8 billion, total assets of approximately RMB 1.84 trillion, total liabilities of approximately RMB 2.44 trillion, and the company was facing the dilemma of continued losses and insolvency.

At that time, market sentiment was not optimistic, and most people believed that China Evergrande would be difficult to turn around. In addition, on August 17th, there was news that the company had filed for bankruptcy protection in the United States, causing both China Evergrande and its founder, Hui Ka Yan, to be engulfed in negative public opinion.

However, since then, the Evergrande Group has not issued any response to market news. It was not until the evening of August 25th that China Evergrande announced on the Hong Kong Stock Exchange that the company had completed all resumption requirements and would officially resume trading on August 28th.

Regarding the resumption of trading of China Evergrande, Bo Wenxi, Chief Economist of IPG China, believes that in light of the company’s previously announced shocking loss performance report, as well as uncertainties surrounding debt restructuring, bankruptcy protection, Hui Ka Yang’s divorce, weak recovery of the real estate market, and other negative factors affecting the industry’s fundamentals, the first day of China Evergrande’s resumption of trading saw a sharp drop of nearly 80%, indicating a severe lack of market and investor confidence in the future of China Evergrande.

At the same time, Bo Wenxi pointed out to TiPost that the resumption of trading of China Evergrande was originally beneficial for promoting Evergrande’s debt restructuring and even corporate reorganization. However, the sharp drop in the stock price after the resumption of trading has cast a shadow on the subsequent processes of delivering completed properties, debt restructuring of Evergrande, corporate reorganization, and the creditors’ meeting, undoubtedly increasing the difficulty of these tasks.

Yan Yuejin, Research Director of E-House Research Institute, holds a relatively optimistic attitude towards the resumption of trading of China Evergrande. He believes that the resumption of trading of China Evergrande is related to the situation of making up for the decline, but it can also be seen as the result of some major negative news being actively released. From the current development of China Evergrande, it has encountered several good opportunities, including the continuous and stable progress of the new round of market rescue work in the real estate market, Evergrande’s various sectors conducting orderly operations, and the potential for real estate stocks to catch up. Therefore, there is still a possibility of further upward movement for China Evergrande’s stock in the future.

Yan Yuejin told TiPost that the resumption of trading is helpful for China Evergrande’s debt resolution. On the one hand, the resumption of trading indicates that the company has not gone bankrupt and can still have a presence in the capital market. On the other hand, it enhances the company’s control ability in debt disposal. However, the crisis and risks that China Evergrande faces still require investors to be highly vigilant. The company needs to actively manage its operations, ensure stable operations, good financial performance, and sufficient confidence in order to better resolve debt issues and restore market confidence.

It is worth mentioning that on the day before the resumption of trading (August 27th), China Evergrande also disclosed its performance report for the first half of 2023. During the reporting period, the company achieved contract sales of 33.413 billion yuan, contracted sales area of 5.115 million square meters, and cumulative sales receipts of 27.1 billion yuan in the first half of the year. However, the company’s loss situation has not improved, with a net loss of 39.25 billion yuan during the period.

As for liabilities, as of June 30th, the company’s total assets were about 1.74 trillion yuan, total liabilities amounted to 2.39 trillion yuan, and excluding contract liabilities of 603.98 billion yuan, it was 1.78 trillion yuan, an increase of approximately 67.83 billion yuan compared to the end of 2022 after excluding contract liabilities.

Among the main liabilities, they include borrowings of 624.77 billion yuan, accounts payable and other payables of 1.06 trillion yuan (including accounts payable for construction materials of 596.17 billion yuan), and other liabilities of 102.88 billion yuan. The average interest rate on borrowings is 7.97%, which is lower than the 8.12% at the end of 2022.

Debtors’ Meeting Postponed Again

In addition to resuming its listing status, the important debtors’ meeting of Evergrande, which was scheduled to be held today, has been postponed again.

On August 28, China Evergrande announced that the Evergrande Agreement Arrangement Meeting will be postponed until September 26, and the Jingcheng Agreement Arrangement and Tianji Agreement Arrangement will also be postponed until September 25.

In response to the postponement, China Evergrande stated that despite the upcoming Agreement Arrangement Meeting, the company and its information agent have received multiple inquiries from Evergrande Agreement Arrangement debtors regarding the restructuring. Therefore, it is necessary for the company and its information agent and advisors to continue to address the concerns of the Agreement Arrangement debtors and assist them.

The company believes that in such a large-scale and complex restructuring, it is crucial for all domestic and foreign Agreement Arrangement debtors to understand the restructuring process and the terms of the agreement arrangements, in order to maximize their participation in the restructuring and provide support for their informed decision-making.

In this regard, Yan Yuejin analyzed to the TiPost App that the three postponed meetings are all related to the disposal of various types of Evergrande debts, and the reasons for the postponement have also been explained. Although China Evergrande’s stock price plummeted on the first day of resumption, objectively speaking, it should be understood as a correction, and the resumption of trading has provided the company with stronger confidence in dealing with debt issues. From the perspective of the company’s operations, the resumption of its real estate, new energy vehicles, and property sectors also indicates a sustained improvement in its business performance. Similar improvements have a positive effect on the company’s debt disposal and the progress of negotiations with investors.

“It is expected that China Evergrande will have more advantages in future negotiations. Especially by mentioning that it allows debtors to better consider the development of the group with more time, it is actually hoping that debtors will reassess the company’s development. Overall, China Evergrande’s initiative has increased, and it also has new ideas in debt conversion,” added Yan Yuejin.

In March of this year, China Evergrande proposed a debt restructuring plan worth over $19 billion overseas; it was later approved by the Hong Kong court at the end of July, and the creditors will vote on the offshore debt restructuring plan on August 23rd. In mid-August, due to actions such as the introduction of strategic investors by Evergrande Auto (00708.HK), the agreement meeting was postponed to August 28th. Now the creditors’ meeting has been postponed again for another month. (This article was first published on the TiPost App, Author | Chen Weina)

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