Evergrande Group shares fell to a four-month low Friday on market fears of interrupted cash flow were reaffirmed by a leaked plea for government aid that has been derided by the property developer as a forgery.
The market losses wiped out more than HK$11.5 billion ($1.5 billion) in value over the course of the day as share prices of China's second-largest property developer by sales fell by as much as 4.6% to hit HK$15.22.
The real estate company was rocked earlier this week by rumors of financial insolvency after a letter supposedly sent by Evergrande requesting government support was leaked online.
"The relevant documents and pictures are fabricated and are pure defamation - causing serious damage to the company's reputation," Evergrande said in a 'solemn declaration' released by the Hong Kong Stock Exchange and promised legal action would be taken. The matter was also reported to the Hong Kong police.
The document, which was stamped with the property development company's chop and dated Aug. 24, also discusses the corporate restructuring of Evergrande subsidiary Hengda Real Estate.
Evergrande had outstanding liabilities and interests of 835.5 billion yuan ($122 billion) as of late June 2020, according to the letter.
If true, this would place the developer squarely in the sights of China's authorities eager to reduce the debt of conglomerates. A recent "Three Red Lines" policy, set to be put into effect from January, will penalize debt-to-asset ratios for developers exceeding 70%.
A Short-Term Fix To A Long-Term Problem
Evergrande may be runner-up for the title of China's largest property developer - but the company has earned top spot as its most indebted developer.
The Shenzhen-headquartered company had been carrying significant short-term debt of about 372 billion yuan in trust and bank loans in late 2019 and this was made worse by the pandemic
Evergrande's first-half profits for 2020 were 14.7 billion yuan - down 46% from 27 billion yuan over the same period last year, according to unaudited company financial statements.
International credit-rating agency Moody's changed its evaluation of Evergrande's credit rating to negative from stable in June 2020. Subsidiary groups Hengda Real Estate, Tianji Holdings and Scenery Journey also saw their ratings decline.
"The negative outlook reflects our concerns over Evergrande's ability to materially reduce its high level of short-term debt, high debt leverage and still high proportion of trust loans in its total debt over the next 12 months to 18 months," Moody's analyst Cedric Lai said in the report.
The agency signaled its doubts over Evergrande's ability to repay existing debt and other financial obligations - including China domestic A-share strategic investments due in January.
