Evergrande, a large Chinese property developer, is on the verge of default. NOEL CELIS/AFP via Getty Images
Evergrande stock dropped as high as 14% on Thursday, as Hong Kong trading resumed after a two week suspension.
A $2.6 billion deal was struck by the Chinese property giant to sell off assets. Home sales have plunged.
S&P Global Ratings stated that Evergrande is at the brink of default raising concerns about contagion in the Chinese property sector.
Evergrande, a troubled Chinese property developer, plunged to as low as 14% as shares reopened on the Hong Kong Stock Exchange on Thursday after a long suspension.
After a deal to sell 50.1% Evergrande's property service arm to Hopson Development failed, investors reacted by selling the stock. The deal would have cost $2.6 billion.
Evergrande, one of China's largest property developers and the most indebted company in the world, also stated that home sales have plunged in a late Wednesday filing. This further scared investors.
According to the company, it has made little progress in selling assets and added: "In light of the difficulties, challenges, and uncertainties in improving its liquidity the Group is not guaranteed that it will be able meet its financial obligations under relevant financing documents and other agreements."
Evergrande shares finished 12.54% lower, standing at 2.58 Hong Kong dollars ($0.33) each. Over the past year, Evergrande's stock price plunged by more than 85%. The Hang Seng index as a whole fell 0.47% while China's CSI 300 saw a 0.36% increase.
Continue reading: These 8 experts from Muddy Waters or BCA Research are helping big-name investors navigate the China Evergrande crisis.
Evergrande and Hopson attempted to negotiate a deal, but trading in the company was suspended for two weeks.
Evergrande owes over $300 billion and has not received a number offshore bond payments. The 30-day grace period for $83 million interest payments ends Saturday. After that, the company will be officially in default.
It desperately needs to raise funds. Hopson announced Wednesday night that Evergrande's deal to purchase Evergrande’s property arm was canceled.
China's property industry has grown quickly over the past decade, borrowing heavily. This raised alarms in Beijing. The government is now reducing the amount of debt and making it very difficult for big developers.
Evergrande's connections to China and the global financial markets has raised concerns that it could collapse. Other developers have been hit hard by a sharp decline in home sales and an increase in borrowing costs. Sinic and Fantasia both defaulted on their debts in recent weeks.
Matthew Chow, an analyst at S&P Global Ratings said that Evergrande is in danger of default. This could have negative consequences for suppliers, contractors, other developers, banks, and financial institutions that lend them money.