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Why China Evergrande Group Stock Popped 16% Today

By Rich Smith – Dec 22, 2021 at 11:38AM

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Evergrande agrees to talk to its creditors.

What happened

Shares of embattled Chinese property developer China Evergrande Group (EGRN.F) got a bit of a reprieve on Wednesday, rising as much as 15.8% as of 2:55 p.m. ET. (Take that share price with a grain of salt, though, because it's bouncing around quite a bit. Closer to noon today, for example, the stock was actually down about 5%!)

Whether the stock finishes the day up or down, moreover, will probably depend on how investors react to Evergrande's latest news.

Man examines a stock chart superimposed on a Chinese flag.

Image source: Getty Images.

So what

Specifically, The Wall Street Journal reported this morning that the restructuring committee Evergrande set up earlier this month has agreed to "engage with creditors." The committee was set up to steer the company past its icebergs of debt and safely into some form of a sustainable business.    

Should this report reassure you? You'd probably expect, after all, that a debtor would be in relatively constant contact with its creditors, especially if the latter had loaned the former some $300 billion. But in the case of Evergrande, communication has been somewhat lacking in recent months, with no one entirely certain whether the company intended to pay interest on its loans or, if so, when.

Those past lapses notwithstanding, the company is now assuring its lenders that in an effort to "mitigate the group's risk and protect the legitimate interest of the parties," Evergrande's "risk management committee" will "actively engage with the group's creditors."

Now what

Mind you, "actively engage with" does not mean the same thing as "promise to pay back in full."

Evergrande isn't making any assurances that it will pay back all of its debts, or even just the $20 billion or so it owes to foreign investors. That's why, after all, Evergrande's stock is down 88% so far this year and why Evergrande's bonds are currently trading at just $0.19 on the dollar. More likely, "actively engage with" is going to end up meaning "tell those creditors how big of a loss they're going to have to take on their loans."

The good news is, with so many investors having apparently feared they were heading for a total loss, just the chance that Evergrande will tell them the damage won't be quite that bad is enough to move Evergrande stock higher today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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