Wednesday, August 10

Shares of China’s Evergrande Slump After $ 2.6 Billion Asset Sale Fails | Evergrande

Shares in real estate giant China Evergrande have fallen sharply after plans to divest a $ 2.6 billion stake in one of its units failed, raising further questions about whether it can avoid the country’s biggest business bankruptcy.

On Thursday morning, China Evergrande Group, the parent company of the expanding empire built by former steel industry executive Xu Jiayin, was down 12% in early trading before recovering slightly to -9.8%. Evergrande Property Services, one of its most profitable units, was down 6.45%.

Evergrande announced Wednesday that it had formally abandoned plans to sell a 50.1% stake in Evergrande Property Services and said there was “no guarantee” that it would be able to meet its financial obligations to stay afloat.

The company, which is the second largest real estate developer in China with thousands of projects, has debts of $ 305 billion.

But it is running out of cash thanks to the government’s crackdown on loans and a drop in sales and property prices, creating shockwaves in the Chinese economy and global financial markets.

The company has been trying to divest assets since September to generate funds to pay off creditors, starting with 1.6 million home buyers who have bought unfinished properties outside the plan, construction contractors and suppliers, and then banks. and Chinese bondholders.

Evergrande also owes overseas bondholders billions and has already defaulted on several key interest on the bonds since September. The company will officially go into default if it fails to accumulate $ 83.5 million when a 30-day grace period for a refund that was originally not made in September ends on Monday.

Creditors say Evergrande has not been contacted regarding repayments and is widely expected to default.

The admission on Wednesday that Evergrande had failed to sell a 50.1% stake in its Evergrande Property Services arm to its smaller rival Hopson Development Holdings for $ 2.6 billion was a major blow.

In a stock exchange filing late Wednesday, Evergrande said it had reason to believe that Hopson had failed to meet the “blanket bidding prerequisite” for his unit, without elaborating.

Hopson said in an exchange filing that he had prepared to complete the deal, but had received a transaction cancellation notice from Evergrande on Oct. 13.

Shares of Evergrande, Evergrande Property Services and Hopson had been suspended since October 4 pending the announcement of the transaction.

In a separate exchange filing on Wednesday, Evergrande said it had made no material progress on the sale of other assets it put into the block, except for the sale of a $ 1.5 billion stake in Chinese lender Shengjing Bank. .

The setback for Evergrande comes after Chinese state-owned Yuexiu Property pulled out of a proposed $ 1.7 billion deal to buy its Hong Kong headquarters last week.

The Evergrande revelations came after several senior Chinese officials sought to reassure home buyers and markets that the current problems in the real estate sector would not be allowed to escalate into a full-scale crisis.

Concerns that a cash shortage at Evergrande, whose liabilities equate to 2% of China’s gross domestic product, could cause economic contagion, has caused other heavily indebted developers to be hit with credit-rating downgrades, while some more small have already defaulted.

In remarks reported by state media Xinhua and echoing the words of the country’s central bank late last week, Vice Premier Liu He told a Beijing forum on Wednesday that the risks were controllable and that the risk was being met. Demand for reasonable capital from real estate firms.

The chairman of China’s securities regulator Yi Huiman added in the same forum that the authorities would properly manage default risks and seek to curb excessive debt more broadly.

“[We need] to improve the effectiveness of the restriction mechanism on debt financing, to avoid excessive financing through ‘high leverage’, ”Yi said.

Chinese property developers have a total outstanding debt of 33.5 trillion yuan ($ 5.24 trillion), according to Nomura, equivalent to about a third of the country’s gross domestic product.

Evergrande, which has epitomized China’s loan and construction-free era, has been struggling to raise funds to pay off its many lenders and suppliers, amid expectations that it is about to formally default on one of its international bonds.

In its presentation Wednesday, Evergrande said it would continue to implement measures “to alleviate liquidity problems” and that it would do everything possible to negotiate the renewal or extension of its loans with its creditors.

“In view of the difficulties, challenges and uncertainties to improve its liquidity, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts,” he said.

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