The stakes are too high to let Evergrande fail. Here's why
Hong Kong (CNN Business)Shares of Evergrande are plummeting in Hong Kong after the debt-laden developer warned it may not have enough funds to meet its financial obligations.
The company’s stock opened lower on Monday and was down nearly 12% by early afternoon, as investors worried about Evergrande’s inability to repay its debt and its contagion risks to the global markets.
“In light of the current liquidity status … there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” Evergrande said late Friday in a stock exchange filing.
The company “plans to actively engage” with offshore creditors on a restructuring plan, it said.
The provincial government of Guangdong immediately responded with a statement, saying it had summoned Evergrande’s chairman Xu Jiayin to a meeting on Friday night. In the statement, the government said it would send a working group to Evergrande to oversee risk management, strengthen internal controls and maintain normal operations, at the request of the company.
Meanwhile, in a raft of seemingly coordinated statements, three Chinese regulators — the People’s Bank of China, the banking and insurance regulator, and the securities regulator — reassured that any spillover risk from Evergrande to the property market, home owners, and the broader financial system can be controlled.
Evergrande has been scrambling to raise cash to repay lenders as it grapples with more than $300 billion in liabilities. So far, the company appears to have avoided defaulting on any of its publicly traded offshore bonds by paying overdue interest before grace periods expire for each of those obligations.
Nevertheless, Friday’s warning is a sign that the company may be unable to make further payments within its debt deadlines.
In the filing, Evergrande also said it had received a demand from creditors to fulfill its pledge to guarantee a payment of $260 million. Creditors may demand accelerated repayment if the company is unable to perform its debt obligations, it added.
Monday is also when the 30-day grace period ends for Evergrande to pay interest on two of its dollar-denominated bonds.
On Monday, Hong Kong’s benchmark Hang Seng Index dropped 1.2%, dragged down by property and tech stocks.
Chinese tech firms fell sharply, following a heavy sell-off in their US-listed stocks on Friday.
Alibaba lost 4.8% after the company announced it would appoint Toby Xu as its new chief financial officer to succeed Maggie Wu.
Baidu dropped 4.7%, and JD.com tumbled 3.1%.
Other Asian indexes were mixed before the close on Monday. Japan’s Nikkei 225 shed 0.2%, and China’s Shanghai Composite inched down 0.1%. But South Korea’s Kospi rose 0.3%.
Dow and S&P 500 futures rebounded Monday following Friday’s losses. Dow futures were up 194 points, or 0.6%. S&P 500 futures were also 0.6% higher.
But futures for Nasdaq slid 1.4%, continuing the downward spiral after a 1.9% drop in the Nasdaq index on Friday.
The tech sell-off extended to cryptocurrencies over the weekend. Bitcoin plunged more than 20% on Saturday, before recouping some losses on Sunday. By Monday, the digital token traded around $48,796, according to CoinDesk.
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