Evergrande shares jump as indebted developer confirms asset sale talks
Chinese group in negotiations to offload stakes in electric vehicle and property management units
Shares in China Evergrande jumped almost 13 per cent in Hong Kong after the country’s most indebted property developer confirmed it was in talks to sell stakes in its electric vehicle and property management businesses.
Evergrande’s towering debts and the risk of potential financial contagion have led to volatile trading of the company’s shares and bonds in recent months.
The stock jumped as much as 12.6 per cent on Wednesday and has risen almost 25 per cent this week. But the value of Evergrande shares has fallen by more than half this year.
The latest uptick in shares followed a statement by Hui Ka Yan, Evergrande’s founder and chair, to the Hong Kong stock exchange on Tuesday night, in which he sought to address “recent increases in the price and trading volume of the shares” and “many confusing news” reports.
Hui, formerly China’s richest man, said the company was “in discussions with several independent third party investors” on asset sales, including its electric vehicle and property management groups.
Iris Chen, an analyst at Nomura, noted that while the asset sales might help near-term liquidity, they were “unlikely to support a repayment of offshore bonds”.
“Overall, the news flow reinforces our previous expectation that Evergrande continues to struggle in its vicious cycle as confidence has collapsed across almost all stakeholders and they are trying to front-run each other,” Chen wrote in a note.
Hui is under pressure to avoid breaching Beijing’s “three red lines” rules on the amount of debt developers are permitted to hold. The rules also require developers to retain enough cash to match short-term debts.
Evergrande’s non-property holdings were estimated at $82bn as of June but the quality of its fringe assets has also come under scrutiny. The electric vehicle unit was once worth more than Ford, despite have never sold a single car.
Evergrande, which as of March had total interest-bearing liabilities of Rmb674bn ($104bn), has outlined plans to cut its debt pile by almost half to Rmb350bn by June 2023.
But last week, S&P Global Ratings downgraded Evergrande deeper into speculative grade and said the company’s liquidity position was “eroding more quickly and by more than we previously expected”.
The company’s offshore bonds are being closely tracked by investors and rating agencies amid a surge in short selling bets against them.
As part of its efforts to raise cash, Evergrande this month also sold a stake in Netflix-style streaming service HengTen Networks Group for $420m.
More uncertainty was added to the outlook for bondholders inside China this week when investor eligibility for Evergrande’s onshore bonds was changed from “qualified investors” to “qualified institutional investors”, according to a notice on the Shanghai Stock Exchange. Chen said this was “a step to limit individual investor participation and prepare for potential restructuring in the future”.