China Evergrande rues speculative attack amid cash woes ahead of January 31 deadline while takeover plan remains stuck

China Evergrande faces a January 31 deadline to repay 130 billion yuan if its restructuring plan does not get the green light

Short interest surged to a five-week high as a letter shows Evergrande pleading for government help to approve a takeover plan from 2016. The letter was fabricated, Evergrande said in a ‘solemn declaration’

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China Evergrande Group’s chairman Hui Ka-yan during the company’s 2017 results press conference at the Four Seasons Hotel in Central on 26 March 2018. Photo: David Wong

Published: 9:21pm, 24 Sep 2020Updated: 12:52am, 25 Sep 2020

China Evergrande Group, the country’s largest developer by sales, was forced counter the most brazen speculative attack yet on its financial standing after a letter circulating on the Internet on Thursday set off alarms in the market.

The company’s stock sank to a four-month low on Thursday, erasing almost HK$11.8 billion (US$1.5 billion) in market value, after the letter with its letterhead and company chop went viral, showing the developer appealing for speedy approval for a 2016 business reorganisation plan involving another Shenzhen-based developer.

“The documents and pictures are fabricated and are pure defamation,” Evergrande said in a Hong Kong stock exchange filing, in the form of a “solemn statement” signed off by Chairman Hui Ka-yan, who is China’s third richest billionaire. Calling it pure defamation, the company has reported the case to the public security authorities, it added.

The saga underscores the jitters surrounding the finances of world’s most indebted property developer as the slowest economic growth in decades caused by the Covid-19 pandemic stoked concerns companies across industries could be overwhelmed by their debt burden, requiring extraordinary state support. That uneasiness was given some weight after market regulators last month issued so-called “red lines” on deleveraging targets for developers.

Hui Ka-yan, Chairman of the Board of China Evergrande Group, attends the China Evergrande Group 2017 Annual Results at the Four Seasons Hotel in Central. 26MAR18 SCMP / David Wong

Short interest, or open positions where traders are betting on Evergrande stock’s decline, had shot up to 9.9 million shares valued at HK$152.9 million, or 38 per cent of the stock’s total turnover on Thursday, according to stock exchange data. That is the biggest daily jump in over five weeks, according to Bloomberg data. The positions only amounted to HK$51.5 million on September 4.

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