Aoyuan shares nosedive amid China's real estate market slump

China Aoyuan Group's shares experienced a significant drop on Monday, marking a rocky return to trading after over a year's hiatus. The Guangzhou-based property developer's shares fell by a sharp 74% by midday, trading at 0.31 Hong Kong dollar (US$0.04), coinciding with a continued downturn in China's real estate market.

The company has been absent from the market since April 2022 when it, along with several other Chinese property developers, delayed the announcement of various financial outcomes. This period was used by Aoyuan to fulfill obligations related to debt restructuring, internal financial investigation, and the disclosure of its financial results.

Aoyuan recently published its financial results for the past years, revealing significant losses. In 2021, the company recorded losses of 33.07 billion yuan (US$4.53 billion), followed by CNY7.84 billion in 2022 and CNY3.74 billion in the first half of 2023. These numbers contrast starkly with a profit of CNY5.91 billion in 2020, before Beijing implemented stricter regulations on the property sector leading to reduced liquidity and a swift fall in sales.

In July, Aoyuan announced plans to raise several billion U.S. dollars through bond issuance and release one billion ordinary shares at HK$1.06 each as part of its strategy to restructure some of its overseas debt with major creditors. Last Friday, Aoyuan disclosed in a Hong Kong exchange filing that it is making satisfactory progress on this proposed offshore debt restructuring plan and expects to initiate relevant court filings soon.

Despite these financial challenges, the company confirmed that it has adequate working capital to meet its financial commitments and intends to continue operating as an ongoing entity. An independent investigation into Aoyuan's internal financial practices found that the company has sufficient control systems in place and no concerns regarding the integrity of its senior management.

The struggles faced by China-centric real estate firms are clear, with the Hang Seng Mainland Properties Index witnessing a 34% decrease this year. However, Aoyuan remains committed to its financial obligations and continues to operate in the market, despite the adverse conditions.

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