Two weeks after markets freaked out about Evergrande, only to completely forget that China’s property sector is about to be gripped by a major crisis, futures got dinged on Sunday night and Hong Kong stocks slumped the most in two weeks after shares in Evergrande and its property management unit were suspended from trading Monday in Hong Kong, as traders eyed a fresh debt test for the developer.
No reason was given for the halts Monday, with shares of another unit, China Evergrande New Energy Vehicle still trading in Hong Kong.
After Evergrande failed to make interest payments on two offshore bonds, uncertainty over Evergrande’s debt returned amid concerns if the company would also default on a dollar note maturing Oct. 3 issued at an initial amount of $260 million by an entity called Jumbo Fortune Enterprises and which is guaranteed by Evergrande. As the maturity is a Sunday, the effective due date is Monday. The issuer is a joint venture whose owners include Hengda Real Estate, Evergrande’s main onshore unit.
What is notable about the Jumbo Fortune note is that unlike the previous two non-payments which have a 30 day “cure” period, the Sunday maturity has no grace period and non-payment of bond principal would constitute a default, although as Bloomberg notes five business days would be allowed if failure to pay is down to administrative and technical error. Details of the guarantees weren’t broadly known as the note prospectus isn’t publicly available and the deal wasn’t listed on exchanges. Adding to the potential leeway is that Monday is a holiday in China.
The news of the suspension sent S&P futures in the red after earlier gains, with Japan’s Topix also reversing an early gain…
… and sent Hong Kong’s Hang Seng falling as much as 2.7%, the most in two weeks, as shares of pharmaceutical and tech companies slide. Following the Merck news, Wuxi Biologics slumped as much as 8.1%, the most since Aug. 20, while CSPC Pharmaceutical tumbles as much as 7.1% In tech land, the Hang Seng Tech Index extended its fall to 2.6%; Ping An Healthcare and Alibaba Health drag it lower, declining at least 6% each
The Evergrande suspension also hammered cryptos although why anyone, beyond a handful of confused algos, would sell here when China can no longer ban bitcoin and its peers having already banned it about 17 times.
Yet as nervous algos were once again googling Evergrande, it appears that China was already taking active steps at ringfencing the coming default, with Caillan reporting that Hopson Development – which is also halted in HK this morning – was set to acquire a 51% stake in Evergrande Property Services for more than HK$40b, a template for what future piecemeal (forced) bailouts of the insolvent property developer will look like.