Shares and bonds of
China Evergrande Group
fell Monday, after a creditor won a legal ruling freezing about $20 million of the indebted Chinese property developer’s assets, intensifying concerns about its ability to repay its debt.
Once a darling of the junk bond markets, where it issued many billions of dollars of securities, Evergrande has become one of the main sources of concern for investors in riskier Chinese debt. While the company has touted rapid progress in debt reduction, as of March it still had interest-bearing debts of 674 billion yuan, equivalent to $104 billion.
Evergrande’s Hong Kong-traded stock dropped 16% to close at 8.21 Hong Kong dollars, equivalent to $1.06, the lowest since early 2017. The company’s onshore and international bonds also fell in price. A 10.5% dollar bond due 2024 declined 6 cents to 61.4 cents on the dollar, lifting yields to 33%, according to Tradeweb.
A court in east China’s Jiangsu province froze 132 million yuan, equivalent to $20.4 million, of bank deposits and assets held by Evergrande units, at the request of lender China Guangfa Bank Co. The ruling was uploaded on July 13 to a Chinese government portal, but was circulating among investors on Monday. The court said it made the decision to protect Guangfa’s legal interests.
Evergrande said a subsidiary owed 132 million yuan to a Guangfa Bank branch in Jiangsu, but said the loan isn’t due until March 27, 2022. Evergrande said it would sue the bank for abusing legal procedures. Calls to Guangfa Bank went unanswered on Monday afternoon.
“Investors are worried if the ruling carries some harsher signal from the top,” said Chuanyi Zhou, a credit analyst at research firm Lucror Analytics. “The event within itself is not critical, but should other financial institutions follow through, it will be stressful for Evergrande,” she said.
Ms. Zhou noted that the ruling covered Hengda Real Estate, Evergrande’s main onshore subsidiary, as well as a project-development unit.
Chinese regulators have been pushing the country’s highly leveraged developers to cut debt, and have restricted banks’ property lending. They are seeking to reduce financial risks and to calm property markets after years of rapid price rises.
Evergrande faced an earlier bout of market jitters last month, and another in September 2020. In response to June’s concerns, it denied that it was deeply discounting apartments and threatened legal action against rumormongers.
The company’s stock has continued to plumb new multiyear lows, however, and last week Evergrande said it would consider paying a special dividend, helping spark a brief rally.
In late June, Fitch Ratings downgraded Evergrande and its subsidiaries by one notch to B, or five notches below investment grade. The credit-rating firm cited the company’s weakened access to the debt market and flagged concerns about profitability.
Write to Xie Yu at Yu.Xie@wsj.com
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