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Why Shares in Evergrande Swung Violently Today

By Lee Samaha – Jan 5, 2022 at 3:10PM

Key Points

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The property developer continues to try and restructure its debt.

What happened

Shares of China's heavily indebted property developer Evergrande Group (EGRN.F -73.33%) declined almost 5% as of 2 p.m. ET on Wednesday after opening nearly 5% up.

Property developments in China.

Image source: Getty Images.

The volatility in the stock reflects investors digesting the almost daily news flow from the company as it battles to sell assets, delay debt repayments, and come to restructuring agreements with its creditors.

Today's news comes from its primary onshore subsidiary, Hengda, after its management arranged a meeting (later this week) with bondholders to delay an option to redeem onshore renminbi debt. For reference, Evergrande Group has already missed payments on offshore debt, an act that caused ratings agency Fitch to downgrade Evergrande to "restricted default" status.

Today's announcement is a further, and inevitable, sign of stress at Evergrande.

So what

The problems at Evergrande are ongoing, and a slowing property market, partly caused by the difficulties at Evergrande and Kaisa, is only going to make matters worse. For reference, Kaisa Group is another property developer that's missed bond repayments and is trying to restructure debt.

A turnaround won't be easy at Evergrande without significant government action. Evergrande has a severe credibility issue, and even as work resumes on its construction projects, it will not be easy to convince new buyers to step forward.

Now what

The latest developments are simply the next round in its ongoing attempts to restructure debt and strengthen its financial position. Global investors will hope that the risk stays contained within these developers and doesn't spread into a systemic risk in China's credit and property markets. As such, investors will be closely following data on China's property sales and prices in the coming months.

Lee Samaha 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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