The ongoing investigation into China Evergrande Group's founder and the heavily indebted property developer's offshore debt restructuring plan may continue to weigh down market confidence despite its stock price surge on Tuesday as it resumed trading following last week's suspension, analysts said.
The group's shares jumped 42 percent during morning trading on the Hong Kong Stock Exchange. The stock closed up 28.1 percent at HK $0.41 ($0.05).
Analysts cautioned against extrapolation from the stock price surge, citing the probe into the suspected illegal activities of Evergrande's founder Xu Jiayin, also known as Hui Ka Yan, and the uncertain prospect of the developer's offshore debt restructuring process as factors that will continue to affect investor sentiment.
Meanwhile, shares of China Evergrande Property Service Group Ltd — a subsidiary of China Evergrande Group — initially rose by as much as 14 percent during morning trading, but experienced a downturn and closed with a dip of over 3 percent.
Trading in shares of the group and its affiliated companies was suspended on Thursday, with the company announcing that Xu, its board chairman and executive director, is subject to mandatory measures in accordance with the law due to suspected illegal activities.
Guan Rongxue, an analyst with the Zhuge Real Estate Data Research Center, said that Evergrande's return to trading will probably fall short of allaying investor concerns about the company's debtcrisis due to the investigation and rising challenges facing its debt settlements.
The group's shares saw a brief surge before paring some of the gains, along with the dip in the company's property service unit shares, signaling the still hovering market concerns, Guan said, adding that it is too early to declare that all the bearish factors have vanished.
The debt-laden developer's previous 17-month trading halt was lifted just one month prior to the most recent suspension.
Evergrande — once China's topselling property developer — is struggling with more than 2 trillion yuan ($278 billion) in liabilities. Things got further complicated last week after the company said it was unable to issue new debt due to an investigation into the company's flagship subsidiary — Hengda Real Estate Group.
In August, the developer had filed for bankruptcy protection under Chapter 15 of the United States Bankruptcy Code in New York City. The chapter shields non-US companies that are undergoing restructuring from creditors who hope to sue them or seize their assets in the US.
Yan Yuejin, director of the Shanghai-based E-house China Research and Development Institution, said as a result of the recent setbacks, the likelihood of Evergrande not being able to reach an offshore debt restructuring agreement with its creditors and the risk of its liquidation have increased.
Nonetheless, the active steps of Chinese regulators provide hope for resolving the problem, which will to some extent help safeguard market stability and the interests of home-buyers, Yan added.
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