Hong Kong: China Evergrande will sell a majority stake in its asset management business for more than $5 billion, Chinese media said on Monday, a deal that if going forward will be the debt-laden property developer’s biggest asset sale ever.
Evergrande, once China’s best-selling property conglomerate, is facing one of the country’s biggest restructurings, as the company is saddled with nearly $305 billion in debt. Uncertainty about Evergrande’s fate has destabilized financial markets, which are concerned about any repercussions from its troubles.
Evergrande said on Monday it has requested a stay pending announcement about a major transaction in its shares trading in Hong Kong. Evergrande Property Services Group, a spin-off listed last year, also requested a halt, saying it was “a potential general offering for the company’s shares”.
China’s state-backed Global Times, citing unspecified other media reports, said that Hopson Development was the buyer of a 51% stake in the property business worth more than HK$40 billion ($5.1 billion). Hopson also said it had suspended trading in its shares, pending an announcement related to a major takeover and potentially mandatory offer of a Hong Kong-listed firm.
Neither Hopson nor Evergrande responded to requests for comment on the Global Times report.
Analysts said the potential deal indicates the company is still working to meet its obligations. But it rekindled widespread concerns about risks to China’s property sector and economy if Evergrande is liquidated at lower prices.
“Selling a property means they are still trying to raise cash to pay the bills,” said OCBC analyst Ezine Hu. “It seems like in the grand scheme of things the asset management unit is the easiest to dispose of.”
The reported proceeds from the $5 billion sale would, theoretically, be enough to pay off short-term offshore creditors, with Evergrande finding more than $500 million in coupon payments by the end of the year and bond maturities of $2 billion. Due to face in March.
The price represents an approximately 17.5% discount to the services group’s December 2020 listing valuation.
Shares of Hopson, with a market value of HK$60.4 billion ($7.8 billion), have risen 40% so far this year and were rated B+ by Fitch in June.
Evergrande’s property services business, which it says managed a total contracted floor area of 810 million square meters at the end of June, was also profitable in the first half of 2021 based on its financial statements.
With liabilities equal to 2% of China’s GDP, Evergrande has raised concerns that its troubles could spread through the global financial system.
The panic has subsided after China’s central bank vowed to protect the interests of homebuyers, but the ramifications for China’s economy have kept investors on edge – especially as signs of distress began to spread to Evergrande’s peers Huh.
Credit rating agency Fitch on Monday cut the credit rating of property developer Fantasia Holdings by four places.
Monday’s stock trading suspension knocked the offshore yuan, which fell nearly 0.3% against the dollar, and weighed on the Hang Seng benchmark index.
Still, potential deal activity pushed shares in Evergrande’s electric vehicle unit up 29%, but impacted regional stocks and global markets.
“This is certainly a positive step towards solving Evergrande’s liquidity crisis and we expect more to come,” said Gary Ng, Senior Economist for Asia Pacific at Natixis.
“While having said that, offloading some assets may not be entirely sufficient, the key to Evergrande is to turn over project construction and sell off the inventory.”
Shares of Evergrande are down 80% so far this year, while its bonds have held steady at distressed levels.
The group said last month it had entered into settlements with some domestic bondholders and made repayments on some wealth management products, largely held by Chinese retail investors.
Creditors of the company’s $20 billion offshore debt appear further behind in the queue and bondholders have said interest payments have failed to come through over the past few weeks.
Evergrande faced a deadline for dollar bond coupon payments totaling $162.38 million in October.
(This story has not been edited by NB staff and is auto-generated from a syndicated feed.)