Can a bankrupt company get people to give away their money, and well keep it forever? No, right? But it is China and the way China’s economy is going, well everything is possible.
Only recently, Beijing asked bankrupt Chinese property developers like the China Evergrande Group to meet payrolls by the month-end, which means a total of at least $197 billion for the real estate industry to cover up outstanding debt and wages. So, they are desperate for cash.
Evergrande’s Money Heist
The Professor always has a plan and so does Evergrande. The shares of the embattled real estate giant rose as much as 15.8% on December 22. And investors were surprised. The company had officially defaulted in December. So, how could its shares resurrect to life all of a sudden? Was Evergrande making a grand comeback that no one would have expected it to make?
Well, no. The sudden spurt in Evergrande shares could be attributed to the restructuring committee that the real estate developer had set up earlier in December while claiming that it had agreed to “engage with creditors.”
A spate of assurances- setting up the investors
The temporary resurgence in Evergrande shares stimulated investor interest, and the real estate company wasted no time in capitalising upon it.
On December 26, Reuters reported that China Evergrande Group claimed to have made initial progress in construction activity. The chairman of the world’s most indebted property developer promised to deliver 39,000 units of properties in December, up from a much fewer delivery of less than 10,000 properties in each of the previous three months.
And then there were more promises. The Evergrande statement claimed that it had resumed cooperation with over 80% of decoration companies and long-term suppliers, having signed 6,869 contracts with material suppliers. It also claimed that 91.7 percent of its national projects had resumed construction.
Evergrande created a sentiment that it is rising again, and this is the time to invest. This is how the real estate developer managed to set up domestic and foreign investors.
And the final act
So, with all of Evergrande’s assurances, Evergrande investors would have thought that finally, they can redeem themselves. But then they were faced with a huge disappointment, probably even bigger than the ones that they had to face till now.
The real estate giant suspended trading in Hong Kong on Monday. In a filing to the Hong Kong Stock Exchange, Evergrande said that its trading halt was pending an “announcement containing inside information.” It didn’t elaborate on the trading halt and there is not much clarity on how far this abrupt halt will go.
This simply means that Evergrande investors won’t be able to sell off their shares and now they are struck. Investors who would have been carried away by a sudden surge in Evergrande shares last month now face sheer uncertainty. They pumped their money in Evergrande stocks at the wrong time and this is it. They are trapped. Meanwhile, the real estate giant might manage to meet its immediate target- meeting payrolls by month-end.
And mind it, this has happened under Xi Jinping’s watch. As soon as the company thought that it can no longer keep the genie in the bottle, it took down the shares. Investor climate in China thus only worsens. Evergrande seems unlikely to repay domestic investors and foreign investors aren’t even on the agenda.