Chinese developer shares tumbled following local media reports that the China Evergrande Group has been ordered to tear down apartment blocks in a development in Hainan province.
Evergrande, the world's most indebted property developer, halted trading in its shares earlier on Monday.
An index of Chinese developer shares slumped 2.8% as of 11:37 a.m. local time, with Sunac China Holdings Ltd. and Shimao Group Holdings Ltd. plunging more than 10%. A local government in Hainan told Evergrande to demolish 39 buildings in 10 days because the building permit was illegally obtained, Cailian reported on Saturday.
Evergrande gave no details on the trading suspension other than saying it would make an announcement containing inside information.
Property firms, including Evergrande, have mounting bills to pay in January and shrinking options to raise necessary funds. The industry will need to find at least $197 billion to cover maturing bonds, coupons, trust products and deferred wages to millions of migrant workers, according to Bloomberg calculations and analyst estimates.
Contracted sales for 31 listed developers fell 26% in December from a year earlier, according to Citigroup Inc. analysts. Evergrande’s sales dropped 99% and were 7% lower than November, the analysts wrote in a note dated Sunday. Sales for Shimao slid 25% from November.
The slump in developer shares wasn’t matched by their bonds. Chinese high-yield dollar bonds rose as much as 1 cent on the dollar on Monday morning, according to credit traders.
The government of Danzhou, a prefecture-level city in the southern Chinese province of Hainan, has asked Evergrande to tear down 39 illegal buildings in ten days, Cailian reported on Sunday, citing a document from the local government.
The report will have a "big" impact on investor confidence, said Kenny Ng, a strategist at Everbright Sun Hung Kai Co. "Having to demolish a project that’s already been built costs [Evergrande] the invested capital and other fines."
The report cited the document, which was dated December 30, as saying that the Danzhou government said an illegally obtained permit for the buildings had been revoked so the buildings need to be dismantled.
Evergrande didn’t immediately respond to a request seeking comment and calls to Danzhou authorities went unanswered on a public holiday in China on Monday.