The company has become a symbol of China's ballooning property crisis, which has seen several high-profile firms engulfed in a sea of debt, fuelling fears about the country's wider economy and a possible global spillover.
Last Thursday Evergrande said its founder and chairman Xu Jiayin was suspected of "illegal crimes" after reports he was being held by police. The same day, the firm's stocks were suspended in Hong Kong.
When trading resumed Tuesday, its shares initially jumped more than 60 percent before paring much of their gains to close up 28 percent at HK$0.41. In July 2020 the stock had traded at more than HK$25.
"Looks like the gains are driven by speculative money," Willer Chen, a senior research analyst at Forsyth Barr Asia, told Bloomberg.
"With this volatility, I really don't know if there's any chance for any proper investor to make money on this name."
Stephen Innes of SPI Asset Management added: "The extent to which the rally sticks and even moves out of penny stock territory will significantly depend on whether a government policy is put in the offing."
Evergrande estimated it had debts of $328 billion at the end of June.
And the company warned last month it was unable to issue new debt because its subsidiary, Hengda Real Estate Group, was being investigated. Key meetings planned for debt restructuring were shelved.
The firm said it was "necessary to reassess the terms" of the plan in order to suit the "objective situation and the demand of the creditors".
Its property arm missed a key bond payment last week, and Chinese financial website Caixin reported that former executives had been detained.
Given the changing status of the Evergrande crisis, and the property market contributing to one-third of the country's economic activity, Innes said he could not "see China sitting back and watching the real estate market crumble".
"Any disruptions or downturns in the property market can have far-reaching consequences for" related industries, ranging from construction materials and other consumer goods, he told AFP.
- Vanished life savings -
China's property sector has long been a pillar of growth -- along with construction it accounts for about a quarter of GDP -- and it experienced a dazzling boom in recent decades.
But the massive debt accrued by its biggest players has been seen by Beijing as an unacceptable risk for China's financial system and overall economic health.
Authorities have gradually tightened developers' access to credit since 2020, and a wave of defaults has followed -- notably that of Evergrande.
The latest measure against the firm's boss is "a sign that Xu's protectors both in the party and in the financial sector are no longer willing or able to protect his interests", Victor Shih, an expert on China's politics and banking, told AFP.
"This is fairly normal in China, but of course Evergrande clearly had very good protection over the years, which allowed it to grow so big in the first place."
The long-running housing crisis has wreaked misery on the lives of homebuyers across the country, many of whom have staked life savings on properties that never materialised.
A wave of mortgage boycotts spread nationwide last summer, as cash-strapped developers struggled to raise enough to complete homes they had already sold in advance -- a common practice in China.
Policymakers have come under intense pressure in recent months to unveil measures to support the economy, particularly the property sector.
But they are not keen on the type of bonanza unveiled in 2008 during the financial crisis, meaning the government could struggle to hit its growth target of around five percent for this year. That would represent one of its worst performances in decades, excluding during the coronavirus pandemic.
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