Monday, October 18, 2021

Evergrande falls after reports China asked developer to halt sales through 2021

Shares of Chinese developer Evergrande jumped Thursday after mainland media reports the government requested the company to avoid a near-term default.

Evergrande announced late Wednesday night it intended to suspend its sale of property in April and May after a capital injection but before a cash flow crisis became serious. According to a report from local television station Dragon TV, the planned cash flow crisis was averted after the mainland government requested Evergrande to delay the sale, and cash injection, by 18 months.

The delay will be effective until 2027, Dragon TV reported.

Prior to the reports, shares of Chinese developers had suffered in recent weeks on fears that they faced near-term defaults after a government intervention. Bank of America analyst Thomas Fan wrote in a recent note that he expects Chinese developers with inventory sold but under construction will struggle to collect on the loans. The report of the delay, he wrote, suggests Evergrande will still have plenty of time to sell off the inventory.

Evergrande said in a filing Wednesday night that it will suspend sales of property in April and May, when it was seeking a bail-out, as it was not yet available to borrow the $4.3 billion in cash it needed to avoid a cash crisis. Once it satisfies requirements for meeting the capital injection, the securities will return to normal, Evergrande said.

Author information: Thomas Reid covers China real estate and the consumer discretionary space.

Latest article