Evergrande shares inch up, ahead of next payment deadline

• Evergrande (HK: 3333) share price reaches HK$2.56 per share
• The grace period on another of its bonds will end on Friday
• News that China may introduce a property tax dampened sentiment
• Making electric vehicles could become Evergrande’s main business
• Keen to take advantage of Evergrande shares’ volatility? Open an account with us to long or short the stock now.

Evergrande stock price pauses rout

Ahead of a key payment deadline at the end of the week, troubled China Evergrande Group’s shares have been lacklustre, hurt by its debt crisis and China’s planned pilot real-estate tax scheme.

The cash-strapped real estate behemoth’s stock was trading flat at HK$2.56 as at 13:07 SGT on Wednesday. On Tuesday, Evergrande shares had plunged 4.1%.

Reuters reported that China’s plans to roll out a property tax will likely be tested initially in first-tier and second-tier cities, and is part of a drive against real estate speculation.

The potential scheme continued to dent risk appetite in the market, similarly weighing on Hong Kong-listed shares of other mainland China property firms.

CLSA analysts wrote that the tax scheme ‘will hurt homebuyer sentiment and discourage investment demand, and thus deepen the physical property market downturn’ in the country. They added that more property policy fine-tuning may be expected, ‘to offset the negative impact of the property market downturn and weak economic outlook’.

Will Evergrande pay its next bond coupon?

Concerns about the wider effects of Evergrande’s debt woes are growing; lately, more Chinese property developers have missed their bond payments.

Fortunately for Evergrande, the company managed to make a coupon payment last week, just before a grace period expired on Saturday. That helped to boost market confidence in Asia, AFP said.

But even as Evergrande ‘narrowly averted a costly default’ with the last-minute bond coupon payment, it still has more than US$300 billion in liabilities, Reuters highlighted.

Analysts cited by Bloomberg said the latest payment would give the company more time to sell assets and raise cash to pay creditors and suppliers.

All eyes are now on another of its dollar bonds, as the grace period on that bond’s overdue coupon will end this Friday (29 October 2021).

With several more payment deadlines to go before 2021 ends, the developer’s creditors are bracing for a seemingly ‘inevitable default’ and an eventual debt restructuring, AFP reported.

China’s authorities are clamping down on excessive leverage in the property sector, as Evergrande’s troubles have left many investors on edge.

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Evergrande to prioritise EV business growth

Separately, shares of the developer’s electric vehicle (EV) unit, China Evergrande New Energy Vehicle Group, jumped 11.4% at Monday’s close.

That followed comments by Evergrande’s chairman that making EVs would become the group’s main business within 10 years.

Bloomberg reported that this shift to the electric-car business could be challenging, as Evergrande has not delivered a single vehicle.

On Tuesday, the EV unit’s stock lost much of its gains from the previous day, closing 6.8% lower.

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