BEIJING, June 1, 2015 /PRNewswire/ -- Evergrande Real Estate (3333.H) suffered a 26.92% plunge in stock price, a record one-day decline since its stock exchange listing, on May 29, a Black Friday for Evergrande. What happened to this underlying stock under the Shanghai-Hong Kong Stock Connect?
Evergrande announced its suspension before the market opened on May 28. According to reports, Evergrande is going to issue new shares at an 8%-10% discount with maximum fund raising hitting HKD 4.76 billion.
Both Shanghai and Hong Kong stock markets suffered a slump on the day. Shanghai Composite Index closed down 6.5%, the second greatest one-day fall of the year, and the HK stock market also fell on the day. According to insiders, Evergrande has to announce suspension and issuance of new shares at a 17.95% discount even at an inappropriate time. Evergrande has no choice but to carry out its strategic decision of issuing new shares at discount, which will bring more funds and profit to the Group while reducing its liability and interest cost.
Evergrande announced its issuance of 820 million new shares at a price of HKD 5.67 on May 29, the fund raised was approximately HKD 4.6 billion. When the Group announced its resumption of trading, Evergrande stock opened lowered by 16% and closed at HKD 5.05 with a dramatic one-day drop of 26.92% on May 29.
Evergrande's stock price had kept climbing since the launch of Shanghai-Hong Kong Stock Connect, and short sellers expecting a decline in Evergrande stock price were held up, so the bearish market and Evergrande's issue of new shares at a great discount offers them an opportunity that had long been expected to free themselves from the holding up problems.
Insiders alledge that it is the fall in Shanghai and HK stock markets, together with the issuance of new shares at great discount and a so-called 'attack' by international short sellers, that lead to the dramatic slump in Evergrande's stock price. However, few noted that the significant fund for accepting the offer flooded into Evergrande on the day of slump. As data revealed, Evergrande's turnover was up to HKD 10.5 billion on May 29 when the Group announced its resumption of trading, topping the list on the HK stock market on the day, which indicated that the major and retail investors considered that Evergrande's stock price has reached its lowest point and they were optimistic about the performance, scale development and branding of Evergrande and expecting the company's luck to change.
Another experienced analyst pointed out that the short sellers made every effort for this fighting on the stock market, but Evergrande kept its stock price over HKD 5, disillusioning these short sellers.
Evergrande has had its "Buy", "Mkt Outperform" and "Strong Buy" rating affirmed in the research reports released by several leading domestic securities companies since April, and the expected price for Evergrande stock was even up to HKD 25.46. In fact, since its stock exchange listing in 2009, Evergrande's stock price has remained low for five years but its performance has kept improving. For Evergrande and Hui Kayan, it will be easy to make a decision between long-term strategic development and short-term fluctuation in stock price.
