The week began for the Evergrande group like the last one ended. It's red, blood-red If there was last week the small hope of a possible special dividend that could prevent a complete dam break, the last resistance broke today. The question arises as to how far stocks will continue to slide and how Evergrande could secure liquidity in the future.
A blood-red week is followed by a blood-red Tuesday
Today's trading day was disastrous for the Evergrande Group. It was the continuation of a blood-red week - a blood-red Tuesday. Evergrande Auto (HK 0708) retired with a daily loss of 16,03% to trade at 10,45 HKD. Things didn't go any better at the parent company. China Evergrande Group (HK 3333) was down 13,41%, costing HKD 5,81 at the close.
There were solid reasons for the massive price losses. These do not suggest anything good for the next few days.
Special dividend surprisingly canceled
Surprisingly, the Evergrande group said goodbye to the plan, one Special dividend to pour out. The possible payout, which was intended to be the issue of shares by subsidiaries, supported the share price last week. Today the company took a turnaround that the market had not expected. The rejection sent the shares into free fall. Evergrande was surprised at the reaction of market participants and suspected that it was “malicious short selling” abroad.
In addition, there was other negative news.
S & P follows suit with downgrade
The US rating agency Standard & Poors (S&P) rated Evergrande's creditworthiness down. The B-rating with a negative outlook now sets the share on "highly speculative". It wasn't until the beginning of the month that Fitch and Moody's had theirs classification Changed from B + to B with negative perspective, S&P followed today. The pressure on the group continues to increase, and it is becoming more and more difficult to secure liquidity.
That still did not deal with the abundance of negative news. There was another setback. It came from China itself. The CCXI (Chengxin International Credit Rating), the Chinese alternative to the US rating agencies, gave the “Evergrande Real Estate Group” one negative outlook with a reference to payment deadlines that have not been met several times. The rating for the parent company remained unchanged at AAA.
Further losses are likely
Where are the courses moving to? Nobody seems to believe in a quick recovery. UBS Bank sees the price target for Evergrande shares (HK 3333) at HKD 3,50. That would be a discount of another 40%. The bank's analysts hold on to the Sales recommendation firmly.
A fall of the Evergrande Group, which was completely unthinkable weeks ago, is also no longer completely ruled out. That would have an impact on banks and the economy. 128 banks and 121 other institutions finance the group. Current liabilities are estimated at US $ 300 billion. The group directly employs 200.000 people. Another 3.8 million indirectly employed people work on the company's construction sites.