It is common for Chinese companies to suspend listed shares prior to the announcement. But there’s nothing routine about the cash crisis that surrounds Evergrande. This week’s suspension of equity trading for the world’s most debt-ridden real estate developers (and the real estate management departments they may sell) could be the first of many in the sector as a whole.
Suspension has the legitimate purpose of preventing insider trading. However, Chinese companies are also using them as circuit breakers in the hope of stabilizing tumbling stocks. For example, during the summer defeat in 2015, half of the listed companies in Shanghai and Shenzhen demanded a suspension of shares.
The plunge in stock prices is a good reason to suspend trading, much like Evergrande sold a 51% stake in Evergrande Property Services for $ 5.1 billion. Its price is 90% higher than the previous market price. The key situation is that EPS shares have fallen 70% in the last six months. Therefore, profitable units do not require a premium by their calculation. Revenue should cover approximately 5 months of cash burn at Evergrande.
Evergrande then runs out of silverware for sale. Evergrande New Energy Vehicle’s share of the electric vehicle business has declined 90% this year. Few buyers may have a deficit unit that hasn’t sold a car yet.
Evergrande is coming to a wider range of fire sales, at least not late but early.The default is spread Between property groups. A subsidiary of Sinic Holdings missed the payment. Fantasia skipped $ 206 million bond maturity payments. Even more worrisome, it became clear that Fantasia had accepted bonds not disclosed in the book.
Investors need to be aware of more hidden debt piles across the sector. They can also expect further inventory outages. Local developers choose to loosen the definition of “significant events” over large-scale M & A transactions. Companies with problems will spend time dealing with funding issues. Many investors are aware that a suspension can trap them in crater assets and take advantage of the innovator to sell while the transaction continues.
The Lex team is interested in hearing more from our readers. In the comments section below, please tell us what you think about China’s stock suspension.
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