Shares of China Evergrande and its property unit soar as trading resumes in Hong Kong on speculative bets that ‘worst is over’

Shares of Evergrande surged as much as 42.2 per cent, while those of its property services unit jumped as much as 14 per cent before paring gains
The developer is likely to have attracted speculative bets by investors who believe ‘the worst is over’, says Forsyth Barr Asia analyst

China Evergrande Group

Jiaxing LiandMia Castagnone

Published: 9:47am, 3 Oct 2023

Why you can trust SCMP

China Evergrande Group’s shares soared as trading resumed in Hong Kong following a two-day halt, after its founder and chairman Hui Ka-yan was placed under so-called mandatory measures by the police in mainland China on suspicion of crimes.

Evergrande’s shares surged as much as 42.2 per cent to HK$0.46 per share on Tuesday morning, before falling back to close at HK$0.41, which restored HK$1.26 billion (US$160 million) of market capitalisation to the embattled developer. Shares of the company’s Evergrande Property Services unit rose as much as 14 per cent to HK$0.67, before giving up all of its gains to finish the session at HK$0.57, down 3.4 per cent.

Shares of China Evergrande New Energy Vehicle Group, which fell 20 per cent to 56 Hong Kong cents the last time they traded, remain suspended.

The Shenzhen-based developer applied for trading resumptions from the Hong Kong Stock Exchange on Monday, saying there is no other inside information in relation to the company that needs to be disclosed.

Trading of Evergande’s shares and those of its two major subsidiaries were suspended last Thursday, as the company said it had been notified by the relevant authorities that chairman and founder Hui Ka-yan has been placed under so-called mandatory measures due to “suspicion of illegal crimes”. It did not elaborate.

“The [share price] movement of Evergrande is becoming harder and harder to predict,” said Willer Chen, senior analyst at Forsyth Barr Asia in Hong Kong. The developer is likely to have attracted speculative bets by investors who believe “the worst is over”, he said.

Hong Kong’s benchmark Hang Seng Index dropped 2.7 per cent to 17,331.22 on Tuesday, hovering around the lowest level since October last year. A gauge tracking mainland developers listed in Hong Kong plunged 3.6 per cent.

Evergrande, the world’s most indebted developer with US$327 billion of liabilities, sparked a crisis in China’s property markets when it defaulted on its offshore debt two years ago. It has struggled to restructure US$20 billion of its offshore debt and claims just, as the process entered its final leg this quarter.

The company filed for bankruptcy protection in the New York earlier this year, as it sought to shield its US assets from creditors while it works on a restructuring deal.

The crisis took a turn for the worse last month after the company scrapped six creditor meetings, and disclosed it was unable to meet regulatory requirements to issue new bonds – a key plank in its restructuring proposal. A winding-up petition in Hong Kong will be heard on October 30, having been adjourned several times since June 2022.

“It is a messy situation, and now it looks like liquidation is more likely to become a reality,” said Chen.

Still, some optimistic investors say a restructuring remains possible. With almost a month to go before the court hearing, there is still time and incentive to do a deal, according to Brock Silvers, the managing director at Kaiyuan Capital in Hong Kong.

“The fact regulators have moved against Hui 30 days before the hearing likely indicates a preference for a deal,” Silvers said. “Today investors are betting that on that being the rational eventuality.”