China Property Titan Evergrande (EGRNF) Collapses to 11-Year Lows, Analysts Wary of Domino Effect

September 20, 2021 4:31 AM EDT

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Shares of the embattled Chinese property giant Evergrande (OTC: EGRNF) are down over 10% to trade at 11-year lows as the management races to save the business from liquidation.

The company has been struggling to raise fresh funding and pay its lenders and suppliers as the liability bill stands at over $300 billion.

Shares initially fell nearly 20% to trade at HK$2.06 before returning to 2.27. This marks the lowest levels seen since May 2010.

"The stock will continue to fall, because there's not yet a solution that appears to be helping the company to ease its liquidity stress, and there are still so many uncertainties about what the company will do in case of a restructuring," Kington Lin from Canfield Securities Limited told Reuters.

Ultimately, the company may be forced to sell most of its assets in a gigantic reshuffling push.

Reuters reported yesterday that Evergrande has repaid some of its investors in its wealth management products with real estate.

Analysts are wary that the likely Evergrande collapse could trigger a wider selloff in capital markets. A collapse could yield a spillover into the other areas of the Chinese economy.

“In the offshore dollar market, there is a considerable large portion of developers (who) are implied to be highly distressed,” AllianceBernstein’s Jenny Zeng told CNBC.

“Once it starts, it takes much more from a policy perspective to stop it than to prevent it from happening.”

“Despite Evergrande’s size – we all know it is the largest developer in China, probably the largest in the world – [it] still accounts for only 4% and now it’s even less of the total annual sales market,” Zeng said. “The debt, particularly the onshore debt, is well collateralized.”

Some analysts believe that the government bailout seems unlikely as the company races to raise funds before the $83.5 million interest payment due on Thursday, but Ed Yardeni of Yardeni Research disagrees.

“The reality is it is too big to fail, and I think the Chinese government is going to intervene big time. I don’t think they’re going to save management… but it will be restructured and in a way that won’t harm the economy too much over there and won’t affect the global economy or financial markets the way Lehman did,” Yardeni said to CNBC.

He also believes that investors should rethink their Chinese positions.

“If you’re invested in Chinese stocks, there have been lots of reasons to get out, quite honestly. The Chinese Communist Party which runs the government over there has been meddling, intervening in the markets, interrupting corporate governance, telling companies how they should manage their businesses. And so I think it’s a good opportunity here just to lie low. I would not be buying on the dips in China.”

Hang Seng Index fell 3.3% to hit a 1-year low near the 24000 handle.

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