Property Stocks Sink After Demolition Order: Evergrande Update

(Bloomberg) — Chinese developer shares dropped following local media reports that China Evergrande Group has been ordered to tear down apartment blocks in a development in Hainan province. Evergrande halted trading in its shares and said the order affected more than three dozen buildings but had no impact on the rest of the development.

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An index of Chinese developer shares slumped as much as 2.8% in Hong Kong on Monday before closing 1.7% lower. Evergrande will handle the case in accordance with the demolition order from the local government in Hainan, a unit of the company said in a statement. Evergrande’s comments came after Cailian reported that the local government told Evergrande to demolish 39 buildings in 10 days because the building permit was illegally obtained.

The Hainan news underscored investor concern that policy makers are unlikely to dramatically ease their crackdown on indebted property companies like Evergrande even as they take steps to ensure stronger developers retain access to funding. “Even though the Hainan project isn’t a significant one in its country-wide strategy, it will have a big impact on confidence,” said Kenny Ng, strategist at Everbright Sun Hung Kai Co.

Property firms have mounting bills to pay in January and shrinking options to raise necessary funds. The industry will need to find at least $197 billion to cover maturing bonds, coupons, trust products and deferred wages to millions of migrant workers, according to Bloomberg calculations and analyst estimates. Contracted sales for 31 listed developers fell 26% in December from a year earlier, according to Citigroup Inc. analysts. Evergrande’s sales dropped 99% and were 7% lower than November, the analysts wrote in a note dated Sunday. Sales for Shimao slid 25% from November.

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The slump in developer shares wasn’t matched by their bonds. Chinese high-yield dollar bonds rose as much as 1 cent on the dollar on Monday, according to credit traders.

Key Developments:

China’s Home-Market Slump May Prompt Developers to Raise Equity



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