Evergrande Shares in China Dip Drastically After $ 2.6 Billion Asset Sale Fail | Evergrande
Shares of struggling real estate giant China Evergrande fell sharply after plans to sell a stake in one of its units for $ 2.6 billion failed, casting further doubt on its ability to avoid the most major corporate bankruptcy in the country.
On Thursday morning, China Evergrande Group, the parent company of the sprawling empire built by former steel industry leader Xu Jiayin, was down 12% in early trade before rebounding slightly to -9.8% . Evergrande Property Services, one of its most profitable units, fell 6.45%.
Evergrande announced on Wednesday that it had officially abandoned its plan to sell a 50.1% tranche of Evergrande Property Services, and said there was “no guarantee” that it could meet its financial obligations in order to to stay afloat.
The company, which is China’s second-largest real estate developer with thousands of projects, has debts of $ 305 billion.
But it is running out of liquidity thanks to a government crackdown on loans and a fall in house sales and prices, sending shock waves through the Chinese economy and global financial markets.
The company has been trying to offload assets since September to generate funds to pay off creditors, starting with 1.6 million homebuyers who bought as yet unfinished properties off plan, contractors and suppliers, then banks and Chinese bonds.
Evergrande also owes billions to offshore bondholders and has already missed several key bond interest payments since September. The company will officially default if it fails to shell out $ 83.5 million when a 30-day grace period for a repayment initially missed in September ends on Monday.
Creditors say Evergrande has not made contact about the repayments and is widely expected to default.
The admission on Wednesday that Evergrande had not sold a 50.1% stake in its Evergrande Property Services branch to smaller rival Hopson Development Holdings for $ 2.6 billion was a blow.
In a stock exchange filing Wednesday night, Evergrande said he had reason to believe Hopson had not met the “preconditions to make a blanket offer” for his unit, without further clarification.
Hopson said in a swap brief that he was ready to close the deal but received notice to terminate the transaction from Evergrande on October 13.
The shares of Evergrande, Evergrande Property Services and Hopson had all been suspended since October 4 pending the announcement of the transaction.
In a separate exchange brief on Wednesday, Evergrande said it had made no significant progress in selling the other assets it has put on the block, except for the sale of a stake in worth $ 1.5 billion in Chinese lender Shengjing Bank.
Evergrande’s setback 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 a number of senior Chinese officials sought to reassure homebuyers and markets that the current woes in the real estate industry could not turn into a full-scale crisis.
Fears that a lack of liquidity at Evergrande, whose liabilities are equivalent to 2% of China’s gross domestic product, could cause economic contagion, have seen many other heavily indebted developers see their credit ratings lowered, while some smaller ones have already failed.
In comments reported by state media Xinhua and echoing comments by the country’s central bank late last week, Vice Premier Liu He said at a forum in Beijing on Wednesday that the risks were controllable and that the demand for reasonable capital from real estate companies was met.
The chairman of the Chinese securities regulator, Yi Huiman, added at the same forum that the authorities would properly manage default risks and seek to reduce excessive debt more widely.
“[We need] to improve the efficiency of the constraint mechanism on debt financing, to avoid excessive financing by “high leverage,” “said Yi.
Chinese real estate developers have a total portfolio of 33.5 billion yuan ($ 5.24 billion), according to Nomura, or about a third of the country’s gross domestic product.
Evergrande, who epitomized China’s freewheeling borrowing and construction era, has struggled to raise funds to pay off its many lenders and suppliers, as it is expected to or on the verge of defaulting on one of its international obligations.
In its Wednesday filing, Evergrande said it would continue to implement measures “to alleviate liquidity problems” and do its best to negotiate the renewal or extension of its loans with its creditors.
“Given the difficulties, challenges and uncertainties associated with improving its liquidity, there can be no guarantee that the group will be able to meet its financial obligations under the financing documents and other contracts concerned,” he added. he declares.