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A man walks past a No Entry traffic sign near the headquarters of China Evergrande Group in Shenzhen, on September 26, 2021. Photo: Reuters

Evergrande: defaulted developer gets delisting reminder as restructuring, probe on US$2 billion deposits leave investors in the dark

  • Hong Kong’s stock exchange issued resumption guidance, spelling requirements to end stock halt
  • Troubled developer pledges to unveil its debt reorganisation plan by next month, while a probe into lost US$2 billion deposits remains open-ended
China Evergrande, which defaulted on its dollar-denominated bonds in December, is getting an early stock delisting warning as the developer struggled to publish its audited accounts and report on a US$2 billion enforcement action by lenders.

The Hong Kong stock exchange on Tuesday issued a “resumption guidance” for the Shenzhen-based home builder to comply with its listing rules, according to a filing, as the stock remained suspended from trading since March 21.

Under its rules, the bourse operator may cancel the listing of any securities that have been suspended for 18 straight months. While China Evergrande’s limit will only expire on September 20 next year, the exchange said it has the right to impose a “shorter specific remedial period, where appropriate”.

“It brings out the message” about the delisting risk, said Sam Chi-yung, chief strategist at Patrons Securities in Hong Kong. “It is not easy to fulfil the requirements for resumption” given the complicated financial situation at the group, he added.


New Evergrande protests amid reports troubled Chinese property giant ordered to raze development

New Evergrande protests amid reports troubled Chinese property giant ordered to raze development

Evergrande failed to pay the interests on US$645 million and US$590 million of junk bonds in December, even after a grace period, triggering cross-default on its other borrowings. The firm has not published its accounts after the June 2021 interim report when it disclosed 1.97 trillion (US$294 billion) of total liabilities.

The cash crunch worsened in March when Evergrande said 13.4 billion yuan of deposits at its property management unit, pledged as security for third party pledge guarantees, had been seized by relevant banks. A committee has been formed to investigate the case, Evergrande said.

The accounts and the investigation outcome are among the remedies needed before the stock exchange would allow its stock to resume trading. The stock last traded at HK$1.65 on March 20, having lost 89 per cent or US$22.9 billion in market value over the preceding 12 months.

China Evergrande said in the Monday filing that the group expects to announce its preliminary restructuring plan before the end of July. An independent investigation into the pledge guarantee is being actively carried out, though it cannot provide a completion date.

“We’ve been pushing forward the work according to relevant requirements,” an Evergrande spokesperson said. The company has not been “lying flat” about its financial situation, the person added.

The stock exchange’s “resumption guidance” may serve as an explanation to protect shareholders, said Andy Lee, CEO of Centaline China. The chances of having the restructuring plan approved and stock trading resumed is still touch-and-go because of many ongoing investigations.

“I don’t think in the short-term, chances for resumption are high,” he added. “While the domestic environment has improved a little bit, its own problems remain to be [solved] in its restructuring plan.” Evergrande has also resumed construction and sales of housing projects in some mainland cities, Lee noted.

E-house China Research and Development Institute expects sales of new homes in 100 China cities to rebound by 21 per cent in June to 25.06 million square metres from a month earlier. That is still 41 per cent below the volume a year ago when the “three red lines” policy was hurting the industry and the pandemic ravaging the economy.