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  • Writer's pictureKarl Oppenheimer

Evergrande Stock Dives 70% as Chinese Developer Continues to Incur Billions in Losses

Evergrande Group, the world's most heavily indebted real estate developer, has reported a significant reduction in its net losses for the first half of the year due to a boost in revenue resulting from a brief uptick in demand earlier in the year.

However, its stock plummeted over 70% upon resuming trading on Monday after a 17-month suspension. This occurred even as shares of most Chinese property firms experienced gains following a series of weekend announcements by officials aimed at stimulating property demand.

Formerly one of China's major property developers by sales, the Shenzhen-based company resorted to extensive borrowing to fuel its expansion. It defaulted on its debt in 2021, triggering a crisis in China's real estate sector, which had once contributed up to 30% of the nation's economy. Recently, Evergrande filed for bankruptcy in the United States.

Investors are closely monitoring the situation due to its significant impact on China's ongoing economic challenges.

Evergrande reported a loss attributable to shareholders of 33 billion yuan ($4.5 billion) for the January to June period, marking a 50% decrease from the 66.4 billion yuan loss ($9.1 billion) recorded in the same period a year earlier.

The company's revenue surged by 44% year-on-year, reaching 128.2 billion yuan ($17.6 billion).

The company stated that it "proactively planned for the resumption of sales and effectively capitalized on the brief surge in the property market that emerged at the start of the year." The Chinese economy experienced a strong start due to a post-lockdown recovery after the country eased strict Covid-19 restrictions. However, this rebound waned since April.

Evergrande incurred a combined loss of $81 billion during 2021 and 2022, according to a belated financial report published last month.

The challenges persist. By the end of June, Evergrande still carried liabilities amounting to 2.39 trillion yuan ($328 billion), slightly lower than the 2.44 trillion yuan ($334 billion) reported at the end of the previous year. Its total assets also decreased from 1.84 trillion yuan ($253 billion) to 1.74 trillion yuan ($239 billion). In March of this year, the company unveiled a multi-billion dollar strategy to resolve issues with international creditors, stating a need for additional financing of $36 billion to $44 billion to complete unfinished property projects.

In its recent filing, Evergrande noted that it had already secured new financing for specific projects and would persist in seeking more capital.

Nevertheless, its ability to continue operations hinges on the successful completion of its offshore debt restructuring plan. The company also needs to negotiate with domestic lenders regarding extensions for its borrowings.

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