Evergrande shares, bonds slump after unit's bank deposit frozen

Evergrande's 8.75 per cent dollar bond due 2025 fell 2.2 US cents on the dollar to 62.7 US cents.
Evergrande's 8.75 per cent dollar bond due 2025 fell 2.2 US cents on the dollar to 62.7 US cents.PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - China Evergrande Group's shares and dollar bonds slumped after a court ordered the freezing of a bank deposit held by its onshore division, raising concern over the company's ability to repay debts.

The stock tumbled 7 per cent on Monday in Hong Kong trading, while Evergrande's 8.75 per cent dollar bond due 2025 fell 2.2 US cents on the dollar to 62.7 US cents, Bloomberg-compiled prices show. A 5.9 per cent onshore bond due 2023 issued by onshore subsidiary Hengda Real Estate Group dropped 3.7 per cent, on pace for a record low.

A court in Jiangsu province ordered the freezing of a 132 million yuan (S$27.7 million) bank deposit held by Hengda and its unit at the request of China Guangfa Bank Co., according to a court ruling released on July 13 that circulated among traders over the weekend. China Chengxin International Credit Rating Co., the country's largest credit risk assessor, previously added Hengda to a watch list, partly because of past-due commercial bill payments.

The news deepens concern over the financial health of China's most indebted developer as Beijing cracks down on excess leverage in the property sector. Founder Hui Ka Yan met last month with officials from the country's top financial regulator, who urged him to solve Evergrande's cash flow problems as quickly as possible.

"Evergrande is on the brink of a crisis," said Shen Chen, a partner at Shanghai Maoliang Investment Management LLP. "The application for asset freezing and the recent overdue commercial bills indicate that Evergrande's debt and liquidity situation is deteriorating. The company may find it more difficult to raise funding in the future, whether in public bond markets or shadow banking activities such as trust loans."

Hengda had about US$32 billion of commercial bills outstanding as of December, the most of any major Chinese real estate company. Some bills issued by its units were earlier this month trading in the secondary market at implied yields as high as 36 per cent , after a series of missed payments this year.

Guangfa Bank said "the situation is urgent and its legal interest will be irrevocably damaged if it doesn't immediately file the asset freeze petition," according to the ruling.

A representative for Evergrande didn't immediately respond to an emailed request for comment on Monday.

The latest news also triggered speculation Evergrande may struggle to get approval for a special dividend at a meeting next week. The stock jumped 9.5 per cent on Friday after Evergrande said it will consider an additional payout to shore up its share price, which has been trading near a four-year low.

The stock has fallen 35 per cent in the past three months to lead declines on the MSCI China Real Estate Index.