Evergrande Group stock at five-year low after warning of liquidity crunch

Investors suspect housing developer Evergrande Group will not be able to repay debt as well as offering few assurances about future cash flow

Chinese property developer Evergrande Group’s shares have plummeted after it warned it faces a liquidity crunch and there was evidence of government action aimed at curbing rapid housing sales in China.

At least 20 million shares, or a 0.78% stake, changed hands on the Hong Kong Stock Exchange on Friday, far more than the three-month daily average. The stock closed down 34.05% at HK$11.40, the lowest since the listing in November 2014.

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The Shenzhen stock market dived 12.5%, while the benchmark Shanghai Composite Index lost 4.9% and the CSI300 index of top Chinese shares closed 4.3% lower.

The Evergrande subsidiary sending shares tumbling, Poly Real Estate Group, reported a 74% drop in fourth-quarter net profit, missing market expectations and adding to worries that debt-laden Chinese companies will struggle to repay debt this year.

The Cypriot bank euroclear said Poly failed to show the funds to be collateral or account for the payments. The Hong Kong bank to which Poly transferred the funds also declined to acknowledge the money.

Reports say this could result in retaliation by the Chinese government as it also started buying yuan-denominated bonds this week.

Evergrande called the criticism aimed at Poly and other developers inaccurate and “illegal”. The company said it was not required to make interest payments on one of its inter-company loans before 28 January.

It added there was evidence of the government taking action against property developers to curb excessive and often speculative real estate sales.

The regulator has already brought in measures intended to rein in soaring housing prices, such as limiting the sizes of homes available for purchase by first-time buyers and clamping down on shadow banking.

Evergrande added that it was in talks with inter-company lenders to honour debt and that “work is underway” to strengthen internal controls.

However, the Chinese News Service said the credit squeeze caused by higher interest rates for Chinese banks could hurt real estate developers.

Chinese real estate has led a construction boom since the middle of last year as the country sought to contain its economic slowdown. But while growth in property prices in many markets has started to cool, developers are using the opportunity to step up sales as they use cheap financing to boost market share.

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