China's Evergrande Shares Plunge 87% as Trading Resumes in Hong Kong After 18 Months

The shares of China's Evergrande Group, which filed for bankruptcy protection in the US earlier this month, crashed as much as 87% in Hong Kong trading on Monday.

The Chinese property giant became a penny stock as trading opened following a 17-month suspension in Hong Kong. Its shares were trading at HK$0.35 on Monday, taking the market capitalization down to HK$4.6 billion. In 2017, the market capitalization stood at more than $50 billion.

 Evergrande Group

Further Loss

Evergrande had applied to resume trading in Hong Kong as it would have faced delisting when the suspension breaches 18 months. The stock had last traded on March 18, 2022. Before trading resumed, Evergrande also said it had improved internal control systems, meeting Hong Kong listing rules.

A filing at the Hong Kong stock exchange on Sunday showed that Evergrande reported a loss of 33 billion yuan for the six months ended June 30. This comes on top of more than 582 billion yuan of losses accumulated in the last two years.

Defaults on Payments

Evergrande, which has been struggling with mounting losses and debt, has more than $300 billion in liabilities. Evergrande, which is the world's most indebted property developer, has more than 1,300 projects across 280 Chinese cities.

Hong Kong stock exchange
Hong Kong stock exchange Wikimedia Commons

When Evergrande defaulted on payments in 2021, the Chinese property sector went into a tailspin, leaving a major dent on the Chinese economy. The property sector has been the strongest growth engine of China for many years, accounting for as much as 30 percent of the country's GDP.

Earlier this month, leading Chinese trust Zhongrong International, which has significant real estate exposure, missed payments on several investment products, confirming fears that the struggling property sector in China is stifling the economy further. Also last month, shares in Country Garden plunged on reports that the real estate developer had suffered multi-billion losses and halted trading on its corporate bonds. Country Garden, which was China's largest property developer by sales, saw its shares suffering a 63 percent fall this year.

China's Worsening Property Sector Crisis

The worsening property sector crisis in China will undermine China's economic growth further. Data showed last week that China's inflation gauge dropped 0.3 percent in July, after having flatlined in June, indicating that the world's second largest economy has fallen into deflation.

China's economy grew at a frail pace in the second quarter as demand weakens at home and abroad, data showed in July. Gross domestic product grew just 0.8% in April-June from the previous quarter, compared with a 2.2% expansion in the first quarter, data released by the National Bureau of Statistics showed last month.

Meanwhile, a Reuters poll showed that China's new home prices will not mark any growth this year. "We haven't seen meaningful improvement in the property market's fundamentals," said Mark Dong of Minority Asset Management, according to Reuters.