Evergrande, Country Garden share prices have collapsed: avoid

Country Garden and Evergrande share prices have collapsed, wiping billions of dollars in value in the past few years. Evergrande’s stock price crashed to H$0.53, 97% from its all-time high. Similarly, Country Garden shares have retreated to H$ 0.75, down from its record high of H$ 14.95.

China has grown rapidly in the past few years, helped by its property market, which accounts for more than a quarter of the total GDP. The country built millions of apartments and new cities, some of which are still vacant today. Over 65 million apartments have no occupants.

China’s local governments generated substantial revenue from selling land to developers like Evergrande and Country Garden. At the same time, millions of Chinese people invested in the property market.

Recently, however, the industry has collapsed. China home prices have crashed at the fastest pace on record. As a result, many people who invested in the industry have seen their net worth plummet.

Worse, many people who made their deposits with Chinese developers have almost lost their cash as they attempt to restructure. Therefore, the implication of all this is that companies like Evergrande and Country Garden will ultimately collapse.

Country Garden recently missed a dollar bond payment, raising the possibility of the eventual collapse. It also warned that its sales had nosedived as people remained concerned about its future. 

Country Garden’s bondholders have now sought talks after it missed making a $15 million payment. The group, which has hired PJT Partners, is owed $2 billion by the company. In total, the company has over $200 billion in total liabilities, which include payments from customers.

Evergrande, on the other hand, has been on life support since 2021 when it first defaulted. Since then, the company has declared bankruptcy in the US in a bid to protect its assets. It has also failed to pay several bonds.

Country Garden and Evergrande chart by TradingView

Evergrande and Country Garden share prices have dived in the past few years. They are not alone as the China property index has dropped to a record low. Therefore, some investors could be tempted to buy the dip hoping that these stocks will bounce back in the long-term.

The sad reality is that these stocks face a big challenge due to the rising interest rates globally and the sharp decline in sales. They also have thousands of incomplete projects, which they need to work on.

The only hope, in this case, is that Beijing uses its cash to bail out these companies. This is highly unlikely because of the slowing Chinese economy and the amount of money needed. Combined, Country Garden and Evergrande have over $500 billion in liabilities. Evergrande owes $340 billion while Country Garden owes $200 billion.

Worse, these firms have a mountain of dollar-denominated off-shore bonds. This situation has worsened since these companies do their business in the renminbi, which has depreciated against the US dollar. Country Garden holds $11 billion of these debts.

Therefore, while Country Garden and Evergrande stock prices have crashed to their record lows, there is room for more weakness. 

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