Evergrande shares sink after saying it is unable to issue new debt

Shares of China Evergrande (3333.HK) dropped by as much as 24% on Monday following the company’s announcement that it was unable to issue new debt due to an ongoing investigation into one of its subsidiaries. This development dealt a significant blow to Evergrande’s restructuring plans. The company stated that it could not meet the qualifications for issuing new notes under the current circumstances. In August, Evergrande’s subsidiary, Hengda Real Estate, revealed that it was being investigated by China’s securities regulator for suspected violation of information disclosure. This investigation adds to the challenges faced by the heavily indebted company, which recently saw its wealth management staff detained by the police, further pressuring its restructuring efforts. Evergrande’s shares fell by 23.6% to HK$0.42, while the broader market (HIS) declined by 0.6%. The company had previously postponed its decision on offshore debt restructuring until next month to allow debt holders more time to consider its proposal. Approval from over 75% of each debt class’s holders is required for the plan, which offers various options for swapping debt for new bonds and equity-linked instruments backed by Evergrande’s stocks and those of its Hong Kong-listed units. Other prominent developers, such as Country Garden Holdings (2007.HK), are also on the brink of default, contributing to depressed home-buyer sentiment and prompting Beijing to implement measures to support the sector and stimulate property demand. The crisis in the property sector, which accounts for approximately a quarter of China’s economy, has had a significant impact on global markets, with Beijing’s efforts to bolster the industry showing limited effectiveness thus far. As of the end of August, the combined floor area of unsold homes in China stood at 648 million square meters (7 billion square feet), according to data from the National Bureau of Statistics (NBS).