China’s Evergrande Shares Suspended In Hong Kong – Free PDF Download

What has happened?

• Shares in troubled real estate developer China’s Evergrande Group and its property management unit Evergrande Property Services were suspended from trading on October 4 in Hong Kong.
• The crisis at the world’s most indebted property developer has triggered fears that its potential collapse could send shockwaves through global markets.
• The firm’s shares have fallen by almost 80% since the start of this year.
• Hong Kong’s benchmark share index was 2.25% lower in Monday morning trade.

But why suspended?

• The firm said the trade halt came ahead of “an announcement containing inside information about a major transaction”.
• It comes amid reports that a rival real estate firm is reportedly set to buy a majority stake in an Evergrande unit.
• Hong Kong-listed property firm Hopson Development is set to buy a 51% stake in Evergrande Real Estate for around $5bn, according to Chinese news outlet Cailian Press.
• Hopson has not yet commented on the report but has suspended trading in its shares, pending announcement “in relation to a major transaction“.

Why is Evergrande in trouble?

• Evergrande expanded aggressively to become one of China’s biggest companies by borrowing more than $300bn.
• Last year, Beijing brought in new rules to control the amount owed by big real estate developers.
• The new measures led Evergrande to offer its properties at major discounts to ensure money was coming in to keep the business afloat.
• Now, it is struggling to meet the interest payments on its debts.

Why it matters?

• Firstly, many people bought property from Evergrande even before building work began.
• They have paid deposits and could potentially lose that money if it goes bust.
• There are also the companies that do business with Evergrande.
• Firms including construction and design firms and materials suppliers are at risk of incurring major losses, which could force them into bankruptcy.
• The third is the potential impact on China’s financial system.
• The financial fallout would be far reaching.
• Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms.
• If Evergrande defaults, banks and other lenders may be forced to lend less.
• This could lead to what is known as a credit crunch, when companies struggle to borrow money at affordable rates.
• A credit crunch would be very bad news for the world’s second largest economy, because companies that can’t borrow find it difficult to grow, and in some cases are unable to continue operating.
• This may also unnerve foreign investors, who could see China as a less attractive place to put their money.

What’s the current progress?

• In recent weeks Evergrande has struggled to make payments to investors in its bonds and wealth management products.
• Last Thursday, the cash-strapped group said that its wealth management business had made a 10% repayment on its products , which are mainly owned by Chinese retail investors,.
• That contrasts with reports of overseas bondholders saying the company had failed to make interest payments by the date they were due.
• The hugely indebted property giant reportedly missed interest payments to overseas investors last week for the second time in a matter of days.
• It was due to pay foreign bond holders $5m by Wednesday.
• But bondholders told Reuters news agency and Bloomberg that they were yet to receive any payment.
• Under agreements with investors, the company has a 30-day grace period before the missed payments officially become a default.
• Evergrande has interest debt payments of more than $160m due in the next month.
• The company has been taking steps in recent weeks to raise money owed to customers, investors and suppliers.
• Last week, it said it was selling a $1.5bn stake it owned in a commercial bank.

Q) With which among the following countries, India has nor signed Comprehensive Economic Cooperation Agreement (CECA)?

1. Japan
2. Malaysia
3. South Africa
4. South Korea

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