Chinese developer Aoyuan slides to almost six-year low after being summoned by Hong Kong court for subsidiary’s US$131 million debt guarantee

Cash-strapped developer China Aoyuan Group tumbled to its lowest level in almost six years after it was summoned by the Higher Court of Hong Kong for guaranteeing US$131 million in debt for a subsidiary.

Shares of the Chinese developer slumped by 9.7 per cent to HK$1.49 at the close in Hong Kong. That put the stock at its lowest close since February 2016, and has taken its annual decline to 80 per cent.

The sell-off in China Aoyuan, which is among a raft of mainland Chinese developers that have missed interest payments on offshore debt, resumed after the company said in an exchange filing that it had received a writ of summons issued on December 23, in which Citibank and Nine Masts Investment Fund sought the repayment of debt and interest owed by Happy Team Investments, a wholly-owned unit of the developer.

“The board has been actively seeking advice from its financial and legal advisers,” China Aoyuan said in a statement. “The company may consider communicating with the plaintiffs to seek to resolve the claim and/or any consequential issues arising from the claim consensually and amicably and within a reasonable time frame.”

The matter will not have a material impact on China Aoyuan’s business operations and financial conditions, according to the statement.

The developer, however, failed to soothe investors’ concerns about the industry-wide financial health of China’s property sector. The property market, which accounts for about a third of China’s economy directly and indirectly, is reeling from a liquidity squeeze and sluggish home sales, as banks tighten funding after the debt crisis of China Evergrande Group was brought to light.