Shares of China Evergrande’s electric car unit plunged as much as 26% on Monday as the debt crisis swirling around the property developer began to impact its broader business.
The declines followed a warning that China Evergrande New Energy Vehicle Group (CENEV) faced an uncertain future unless it got a swift injection of cash following a decision to halt a yuan-denominated share sale.
Shares slid to as low as HK$1.66 ($0.21) in early trade before paring losses to fall 2.2%. China Evergrande’s stock rose 5% to steady near the decade-low they made last week, while Evergrande dollar bonds were at distressed levels.
SHOCK AND AWE
In the broader market, concerns that a collapse at Evergrande could drive a global crisis have ebbed.
“I think the markets have priced in that on the balance of probabilities, the shock and awe is over,” Kyle Rodda, analyst at brokerage IG Markets in Melbourne, said.
“Markets are really just expecting from here on in, a company that is doomed to failure but one which won’t be allowed to result in major risks within the Chinese financial system – or that (contagion) won’t pervade global markets.”
CENEV, whose brand name in China is Hengchi, has been fighting a funding problem for months. It’s been losing money since its formation in 2019 as rivals Tesla and BYD have managed to get products in display windows faster.
Losses widened in the first-half this year as the cash crisis threatened to force a halt to production. Also, Evergrande is mulling the sale of a stake in the carmaker to smartphone giant Xiaomi as the parent company desperately tries to plug its gaping debt chasm.
Evergrande missed a payment deadline on a dollar bond last week and its silence on the matter has left global investors wondering if they will have to swallow large losses when a 30-day grace period ends.
Its next major test in public debt markets will come on Wednesday when it is due to make a $47.5 million bond interest payment on its 9.5% March 2024 dollar bond.
With liabilities of around $305 billion, Evergrande has run short of cash and rapidly become Beijing’s biggest corporate headache, with investors worried a collapse could pose systemic risks to China’s financial system.
The stricken developer is scrambling to raise funds to pay its many lenders and suppliers, as it teeters between a messy meltdown with far-reaching impacts, a managed collapse or the less likely prospect of a bailout by Beijing.
• Reuters with additional editing by Mark McCord
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This story was updated with a different headline.