The Hong Kong-listed property developer stock index saw a 1.1 percent decline in early session trading this morning as Chinese real estate firms’ shares tumbled. This comes as a result of investors’ disappointment in the debt restructuring plan proposed by Evergrande, a major real estate company in China that is currently facing financial difficulties.
Despite announcing a $22.7 billion foreign debt restructuring offer on Wednesday, Evergrande has failed to build trust with investors regarding China’s real estate market prospects. As a result, trading conditions in the Hong Kong stock market were sluggish.
Although trading of Evergrande stock has been suspended by the Hong Kong stock market until the company releases its financial report, the shares of rival companies such as Country Garden Holding and Sino Ocean Group fell. Country Garden Holding shed 0.9 percent while Sino Ocean Group shed 5.9 percent.
Under Evergrande’s debt restructuring plan, bondholders will be given two options. Creditors will be able to convert their current instruments to new instruments with maturities of 10-12 years. In addition, the company stated that it needs to raise additional funds of RMB 250 billion to RMB 300 billion to continue its business over the next three years.
The Chinese government’s measures to contain the real estate sector’s overheating have caused Evergrande’s financial condition to deteriorate. The government is also restraining large-corporation debt in the real estate sector, which is a key pillar of China’s growth and has a high share of economic output, almost 30 percent. Evergrande’s potential bankruptcy poses a risk to the Chinese banking system and could have pervasive effects on other companies in the real estate sector.
In summary, the disappointing debt restructuring plan proposed by Evergrande has led to a decline in Chinese property stocks, causing concern among investors and putting the Chinese economy at risk.