China Evergrande soars 70% to lead Chinese property names higher after another developer dodges default
China Evergrande shares soared by up to 82% on Wednesday, causing a surge in other Chinese real estate companies' stocks. The sector's impressive rally was triggered by Country Garden's successful payment of $22.5 million in bonds on Tuesday, preventing a potential default situation. Another factor that boosted share prices was an article published in the state-owned Securities Times, advocating for the relaxation of property market restrictions.
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China Evergrande's shares experienced a significant surge of up to 82% on Wednesday, triggering a similar upward trend in Chinese real estate stocks like Country Garden Holdings and Logan Group.
The industry-wide surge came after Country Garden narrowly avoided a default by successfully making a payment of $22.5 million towards their bond coupons on Tuesday. Originally, the payments were supposed to be made in August, but the troubled developer managed to settle them just before the 30-day grace period ended.
The stock price of Evergrande remained at approximately 0.64 Hong Kong dollars after reducing some of its initial increases, while the Hang Seng Mainland Property Index rose by around 4%. Country Garden and Logan experienced significant surges in their stock prices, reaching up to 26% and 28% respectively.
Additionally, the property market received a boost on Wednesday due to remarks made by the Securities Times, a government-owned publication in China. The article advocated for the loosening of limitations on the real estate sector.
This follows Beijing's implementation of various measures to support the real estate industry and the overall economy.
In the meantime, Evergrande, a once-massive real estate company with a value of $50 billion, which recently sought protection under Chapter 15 bankruptcy, still holds the title of being the property developer with the highest debt in the world.
On August 28, the value of shares plummeted by 87%, reaching penny-stock levels. This was the first day that the company resumed trading after a halt of 17 months.
Just a few days ago, a report from the company revealed a whopping 33 billion yuan loss in the first half of the year, piling on to the already staggering 582 billion yuan loss accumulated over the past two years.
Doubts about China's struggling real estate industry have sparked worries about a possible crisis that could harm the overall economy. This comes at a time when the country is also grappling with various other problems, including high levels of joblessness among young people, as well as weakening levels of spending and production.
In August, analysts from Citi expressed apprehension about the possibility of firms such as Zhongront Trust facing defaults. This particular shadow bank has a vulnerable position in the real estate sector. However, these concerns were also shared by other experts who spoke to Insider. They were of the opinion that strict regulations and policies implemented by the government should have the ability to control any widespread negative consequences.
Nicholas Spiro, a partner at real estate consultancy Lauressa Advisory, expressed in a recent interview that we should not expect an abrupt and intense shock or a substantial decline in confidence and financial stability. Instead, he anticipates a gradually unfolding economic crisis that could persist for an extended period, potentially stretching out for years. According to Spiro, what we are witnessing is a fundamental and long-lasting economic downturn that lacks vitality and vigor.
