Evergrande restructure tipped as contagion grips Asia Pacific markets

The deepening China Evergrande crisis is plaguing stock markets in the Asia region as investors contemplate the ramifications of the collapse of China’s second-largest property developer.

On Tuesday (21 September), Hong Kong’s Hang Seng Index slumped to a new 11-month low before clawing back some of the losses before close.

Japan’s Nikkei fell more than 2%, it’s biggest single-day fall in 3 months.

Meanwhile in Australia, the ASX 200 suffered its biggest single-day fall since February, dropping more than 2% on Monday. Australia’s economy is reliant on iron ore exports, thus it stands to be severely impacted should the Evergrande crisis result in a major construction slow-down in China.

Year-to-date, China Evergrande’s shares are down -84%, trading close to their lowest level since listing on the Hong Kong Exchange in 2009.

The company’s equity has all but evaporated amid liabilities totalling just over US$300 billion.

Asia Markets provided a comprehensive overview of the crisis in this feature article published last month.

Evergrande restructure likely, but no bailout

Andy Rothman, an investment strategist at Matthews Asia today told CNBC he believes the Chinese Government will recognise that preventing an insolvency crisis is in the nation’s best interest so an “orderly” Government-led restructure of the property developer is likely.

“This is one of the reasons I believe this is not a Lehman moment, the Chinese Government has the tools and they say they are willing to use them,” said Rothman.

“Also keep in mind Evergrande is not a structurally systemically important financial institution – it’s a real estate developer, it has around 4% market share in China.”

“I don’t think they’re going to bail out Evergrande, I think they’re going to restructure it, Evergrande’s owners are going to pay a price for this, investors will take a haircut.

“The focus is going to be on an orderly restructure, primarily designed to make sure individual Chinese people who put money down for an apartment get that apartment and also so retail investors in China who’ve invested in wealth management products sponsored by the company get their money back as well… but they’re not going to bail them out in the traditional way.”