China Evergrande (HKG: 3333) shares are up 28% in Hong Kong today. This follows their relisting after the suspension last week. What’s really happening here is that vies about survival are changing as varied fun and interesting stories hit the newswires. Some of them are important to the survival - or not - of the company in the traditional financial sense and others, well, perhaps they have to be viewed through a more political lens.
In that traditional sense this doesn’t bode well for Evergrande: “China Evergrande (HKG: 3333) shares are down 24% this morning. The drop is as a result of news over the weekend. That debt restructuring they were about to go through, the one that had been boosting the stock since relisting? It’s not now going to happen. Or, at least, it’s now not going to happen now and upon the terms they’d been thrashing out.” But that’s old news by now. But from just last week about China Evergrande: “China Evergrande (HKG: 3333) (OTC: EGRNF) shares are down another 7% in Hong Kong on news of a mainland default on a bond. The problem appears to be that it’s just not possible to keep all those plates continually spinning. This is what was meant by that old phrase that bankruptcy happens slowly, then all of a sudden. The ability to, in the initial stages, stave off payments, reschedule, calm creditors and so on. But at some point this becomes impossible and then it all happens suddenly.” There are so many different bond issues, from different subsidiaries, with different terms, that juggling them might be done for a time. But when they do start to go then they can cascade - with or without the usual cross-default clauses that we’d see in international bond issues.
China Evergrande share price from Google Finance
The big issue behind this is that yes, we all know the company is, in effect, bust. But what happens next is a political decision by the Chinese economic authorities. Are they going to let this fail completely and then pick through the rubble in bankruptcy? Or try to delay, offset or even prevent that happening? That’s all politics.
Which makes this Reuters report a little worrying: “China Evergrande Group (3333.HK) Chairman Hui Ka Yan is being investigated on suspicion of transferring assets offshore while the indebted property developer struggles to complete unfinished projects, the Wall Street Journal reported on Monday. Evergrande has been working to get creditors' approval to restructure its offshore debt but the process grew more complicated last week when the company said it could not issue new debt due to an investigation into its main China unit.”
If the management of the company has lost that political support (having offshore assets is common and typical, even if supposedly not done. It’s one of those things that allows the authorities to come after you if they desire to) then that might be an indicator as to which way this is going to go. Except, obviously enough, the share price is indicating exactly the opposite.
The China Evergrande share price is really an option value on whether the political process will save the company or not.
