Jinrong Cai contributed to this story
A day after China’s top securities regulator warned of the possible risks of “extraneous factors” weighing on the country’s local currency, the national currency, shares in Beijing-based Chinese developer Evergrande Real Estate Group jumped more than 15% after Moody’s upgraded its debt outlook to positive.
Amid strong profit growth, shares in one of China’s biggest developers, Evergrande, fell 18% this year through Wednesday in Hong Kong, compared with a nearly 17% gain for Hong Kong stocks, which have been helped by authorities’ efforts to avoid financial risks in the broader financial system.
The National Committee on Finance and Economic Development, an advisory body, said Wednesday that it has set guidelines for China’s State Administration of Foreign Exchange to try to minimize near-term defaults from the nation’s real estate sector.
The state policy adviser sent out a statement on Wednesday, released by China’s foreign exchange regulator, saying the regulator will “strengthen controls on the real estate market and ban a range of related “extraneous factors” from causing the yuan’s currency to fall.”
Shareholders hope Moody’s upgrade will help to relieve concerns about Evergrande. Evergrande has a market value of about $36 billion, and its shares were upgraded to A3 from A2.
Investors have expressed concern that Evergrande’s default risk could increase as China’s government requires developers to downsize their debts, cutting the amount of equity that an owner puts into a new project to avoid falling into default.
Shareholders are worried that the liquidity crunch will increase more defaults, and that shareholders will be pressured to buy back at unsustainable prices to raise capital.
For their part, Evergrande said in a filing that the company has enough liquidity and working capital, and that there’s no potential for difficulties in servicing its debt. “The new construction, property sales, property planning and business activities are not expected to undergo long periods of sales delays,” it said.
China’s central bank has said that risk levels are normal, suggesting Beijing won’t allow major financial instability to occur.