SHANGHAI, July 20 (Reuters) – Stocks and bonds of China Evergrande (3333.HK), the country’s most indebted developer, remained in the red on Tuesday as concerns about its financial health continued even after an authority local housing has lifted a suspension of sales in two real estate projects.
Hong Kong-listed Evergrande shares fell 19% to a new four-year low in morning trading, after falling 16% on Monday, after the Shaoyang City Housing Authority in the south-central Hunan Province, ordered sales to stop for the two residential projects. . Read more
The authority had ordered the suspension on suspicion of embezzlement, according to separate notices dated July 14. But in a reversal on Tuesday, she said the issue had been resolved and both developments could resume sales.
Evergrande declined to comment when contacted by Reuters.
At 06:50 GMT, Evergrande stock was down 9.1%, while its property management unit Evergrande Services (6666.HK) rebounded to trade 2.2% firmer.
The halt in sales had heightened fears that Evergrande, which owes around $ 90 billion by June, would struggle to pay its debts. News also emerged on Monday that a Chinese court had frozen one of Evergrande’s bank accounts at the request of creditor China Guangfa Bank Co (GDDVB.UL).
“Evergrande’s external funding is limited, so its debt repayment depends heavily on property sales,” Everbright Securities analyst Zhang Xu wrote in a report on Tuesday.
But revenue generation is a challenge for Evergrande, whose real estate projects for sale are mostly located in China’s third and fourth-tier cities, Zhang added.
Pessimism is spreading in the wider real estate sector, as China left its key rate unchanged in its July fixing on Tuesday, dashing hopes of a cut after a surprise drop in bank reserve requirements last week.
China’s CSI300 real estate index (.CSI000952) was down 0.1% on Tuesday afternoon, after falling 1.9% on Monday.
Although China has eased monetary policy slightly to help small businesses and avoid systemic risks, there will be sustained restrictions on liquidity flowing into the real estate sector, said Cheng Hao, Shanghai-based fund manager at Fidelity International. .
Wonnie Chu, chief executive of GaoTeng Global Asset Management, said surging bond yields for a developer risked creating a “vicious cycle” that could damage refinancing capabilities.
An Evergrande bond traded in Shanghai closed 6% lower on Tuesday at 64.7 yuan against its face value of 100 yuan, after recouping some losses. An Evergrande bond maturing in January 2023 ended down 5% in Shenzhen, to 74.9 yuan. Bond prices move inversely with yields.
Chinese developers are grappling with slowing sales and rising financing costs as Beijing restricts home loans and imposes policies under “three red lines” guidelines to force deleveraging in the industry.
“The housing situation in China is quite political as it becomes a matter of affordability and social cohesion,” said Carlos Casanova, senior economist for Asia at Union Bancaire Privée.
The government will continue to keep the restrictions in place, “so we’re going to see more flaws.”
Last week, Chinese real estate developer Sichuan Languang Development (600466.SS) said it had outstanding debts totaling 4.54 billion yuan.
China Fortune Land Development Co (600340.SS), which defaulted earlier this year, said on Tuesday that its past due debts stood at 73.2 billion yuan.
Reporting by Samuel Shen and Andrew Galbraith; Additional reporting by Clare Jim in Hong Kong; Editing by Jacqueline Wong
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