Readers will know that China’s Evergrande group has become a central part of the story of the current economic slowdown in China.
Evergrande has been reeling all year as it struggles to meet the terms of China’s Three Red Lines policy aimed at deleveraging property developers to end, once and for all, the misallocation of capital into building empty apartments.
Evergrande has led a disastrous year of evaporating property developer equity on Chinese bourses:
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I still can’t see how Evergrande can survive with its enterprise value now shrunk to just 5% of its liabilities. More importantly, am I not the only one:
China Evergrande Group sank to an almost six-year low and its electric-vehicle unit lost more than a quarter of its value amid mounting concern that shareholders will bear the brunt of the developer’s liquidity crisis.
Shares of Evergrande slid 12% on Monday in Hong Kong to close at the lowest since September 2015. China Evergrande New Energy Vehicle Group Ltd. tumbled 27%, the most since October 2015. The group’s property services unit dropped 9%.
…Shareholders were dealt a blow on Monday following a report that Evergrande may sell its Hong Kong headquarters building at a loss. The developer plans to sell the office tower to Yuexiu Property Co. for HK$10.5 billion ($1.3 billion), less than the HK$15.6 billion it sought, Sing Tao Daily reported, citing unidentified people. It acquired the building for HK$12.5 billion in 2015.
Why would anybody buy assets from Evergrande at face value when you can pick it up in bankruptcy court for pennies soon enough? To wit:
The debt-laden developer is looking to sell the site in the Yuen Long area of the New Territories for HK$8 billion ($1 billion), one of the people said, asking not to be identified because the matter is confidential. That’s lower than the HK$8.9 billion it paid to acquire the project.
This is already a headwind for property starts in China as finance tightens:
As Evergrande counterparty risk grows, construction starts will continue to be negatively impacted with a rising tail risk of an accident in the segment.