Chinese property stocks tumble as expected US rate hike adds to woes

A partially removed corporate logo of China Evergrande Group is seen on the facade of its headquarters in Shenzhen, Guangdong province, China January 10, 2022. REUTERS/David Kirton

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HONG KONG, Jan 27 (Reuters) – Shares of China Evergrande Group tumbled on Thursday after the developer’s sketchy roadmap for restructuring left investors unhappy and its indebted peers also fell on fears that rates higher interest rates only increase financing costs.

Regulatory restrictions on borrowing have plunged China’s real estate sector into crisis, as pointed out by Evergrande (3333.HK), the world’s most indebted real estate company. The contagion has engulfed other Chinese developers, rattled global financial markets over the past year and contributed to a slump in China’s property market, which accounts for a quarter of its economy.

Evergrande closed down 3.4% at HK$1.71 ($0.2195) on Thursday, following a 9.6% loss in early trading, due to investor skepticism over the developer’s plans to put put in place a preliminary restructuring proposal in six months. Read more

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The Hang Seng Mainland Properties Index (.HSMPI) lost 2.6%, while the benchmark Hang Seng Index (.HSI) fell 2%.

The US Federal Reserve said on Wednesday it would likely raise interest rates in March and reaffirmed its intention to end its bond purchases. Read more

“Chinese real estate companies are highly leveraged, with a lot of overseas debt, so the US Fed signaling a large rate hike margin will put even more pressure on their funding,” said Alvin Cheung, managing partner at Prudential Brokerage. ltd.

The long-awaited communication between Evergrande and creditors came as Beijing plans to tighten control over the property developer, while taking steps to stabilize China’s property sector.

Evergrande’s assets are set to be taken over by state-owned companies as part of a restructuring led by the provincial government of Guangdong, where Evergrande is based, Reuters reported. Read more

Those plans appear to be in place with Bloomberg, citing sources familiar with the matter, reporting on Thursday that the provincial government has submitted a proposal to Beijing to sell most of Evergrande’s assets, except for its separately listed property management (6666 .HK) and his electric vehicle. units (0708.HK).

A group led by China Cinda Asset Management Co, a state-owned bad debt manager and Evergrande’s main creditor, would take over all unsold real estate assets, according to the Bloomberg report.

The Guangdong provincial government did not immediately respond to a request for comment.

Evergrande set up a risk management committee last month, made up mostly of senior officials from state entities, including Cinda (1359.HK), and earlier this week appointed Liang Senlin as chairman of China Cinda ( HK) Holdings Company, a unit of Cinda, as a new board member. Read more

APPEAL FROM CREDITORS

The fall in Evergrande shares on Thursday came after the company told investors on a call late Wednesday that it hoped to work with them to find a risk management solution, and that it would deal with all categories of creditors “equitably and would follow international practices”. The company also urged creditors not to take “aggressive legal action”.

But some bondholders were disappointed with the 25-minute call, which included prepared answers to questions, saying it gave no insight into Evergrande’s plans.

Adding to the pressure on Evergrande, the Financial Times said on Thursday that asset manager Oaktree Capital, which is a lender to Evergrande to develop a large piece of land in Hong Kong, decided this week to take control of the asset by appointing a receiver after Evergrande. defaults on the loan.

The move could lead to the failure of Evergrande’s offshore debt restructuring plan, as the 2.2 million square foot (204,000 square meter) luxury housing development was a crucial collateral, the report said.

Evergrande has liabilities of $300 billion, including nearly $20 billion in international bonds, all deemed to be in default after a series of missed payments late last year.

Amid Evergrande’s fall, other Chinese real estate companies also suffered losses.

Shares of Times China Holdings (1233.HK) plunged 26.8% to HK$3, after the Guangzhou-based developer said it would raise HK$400.2 million ($51.38 million ) placing shares at HK$3.4 each, a 17.1% discount from Wednesday’s closing price. .

The company sold 117.7 million shares, representing 5.6% of its expanded capital, for debt repayment and working capital, it said in a filing.

Shenzhen-based Logan Group also said on Thursday it had raised HK$1.95 billion through 6.95% equity-linked securities due August 2026 to refinance debt.

Its shares fell 15.7%.

($1 = HK$7.7913)

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Additional reporting by Donny Kwok and Xie Yu, Samuel Shen in Shanghai; Editing by Himani Sarkar and Christian Schmollinger

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