Evergrande is still 99% off its trading highs

COMMENT: Despite recent surge, Evergrande is still 99% off its trading highs – by Kyle Rodda, Senior Market Analyst at Capital.com

 
“Evergrande has re-emerged as a prominent risk to global markets, however, the problem never really went away after the onset of the crisis in late 2021.

The saga has taken an interesting turn, with the property developer’s founder being put under house arrest. Details are very scant, but Hui Ka Yan is accused of transferring assets offshore. The move by authorities also came after Evergrande walked away from creditor meetings, shelved restructuring plans for offshore debt, and (most egregiously) missed a repayment on its onshore debt.

That last detail could provide the best explanation for authorities’ heavy-handedness. While failing to meet obligations to overseas bondholders raises long-term credit and credibility risks, losses are borne by foreigners, whom the CCP has very little political and economic interest in protecting. Domestic bondholders are deeply embedded in the financial system as are Chinese investors; failing to honour obligations to them raises immediate systemic risks and the potential for blowback amongst a frustrated citizenry.

It was probably in response to the arrest of its founder that Evergrande went into a trading halt last week. Off the Golden Week public holiday, the share price surged, which could be a signal that the risks of a total collapse of the property developer have been allayed. However, it’s good to keep in mind that the stock has lost more than 99% of its value from its highs.”