Evergrande Fire Sale Just Getting Started as Debt Woes Mount

(Bloomberg) -- Under mounting pressure from financial regulators to shore up its finances, China Evergrande Group is poised to dump more of its sprawling empire. 

The clock is ticking for billionaire Hui Ka Yan and his company, which is laden with $300 billion in liabilities to banks, suppliers and homebuyers. Despite getting temporary relief from some major creditors, the message from policy makers is clear: Evergrande must resolve its debt woes fast enough to avoid roiling the world’s second-largest economy. 

That means demonstrating its goodwill by quickly selling assets, potentially at steep discounts. Evergrande may offload its Hong Kong headquarters and a large residential land parcel in the city at a loss, Bloomberg and local media reported in the past week. Since March, spooked investors have shaved about $78 billion from the value of Hui’s electric vehicle and property management units, which are also on the block. 

The share declines will dent how much Hui can hope to recover from asset sales. BNP Paribas SA estimated in June that the Shenzhen-based developer had $80 billion worth of equity in non-property businesses that could help generate liquidity if sold.

“Evergrande bonds will ultimately rise or fall based on the company’s ability to monetize non-core assets ahead of existing repayment schedules and before Beijing runs out of patience,” said Brock Silvers, chief investment officer of Kaiyuan Capital in Hong Kong.

China’s central government has instructed authorities in Evergrande’s home province of Guangdong to map out a plan to manage the firm’s debt problems, including coordinating with potential buyers of its assets, Bloomberg reported earlier this month. Beijing asked Guangdong officials to resolve the matter with a “market-oriented” approach, REDD reported on Thursday.

Evergrande’s 8.75% dollar bond due 2025 slipped 1 cent to 36 cents on Friday morning, heading for a fresh low, Bloomberg-compiled data show. Its shares rose 4.7% in Hong Kong trading, paring this year’s drop to 70%. 

In recent months, Evergrande has only raised about 10 billion yuan ($1.5 billion) by paring its holdings in the EV arm, an internet subsidiary, a small onshore property firm and a regional bank, according to Bloomberg calculations. Gains from share sales helped to prop up first-half profit, which fell as much as 39% due to losses at the property and EV businesses, Evergrande said this week. 

Here’s a rundown of potential asset sales, together with estimates from analysts or reports on the amount each might raise: 

• Hong Kong headquarters: potentially around $1.3 billion for the building, according to Sing Tao Daily
• Large residential land plot in Hong Kong’s New Territories: Evergrande is seeking around $1 billion, a person familiar with the matter said
• More of its electric vehicle unit following stake sales in January and May: as much as $4.2 billion if it offloads its entire holding at the Aug. 26 closing price
• Property management subsidiary: as much as $4.9 billion if it sells the lot at current value
• More of its holding in internet business HengTen after sales in June and August: worth about $1.2 billion
• A 9.8% stake in a local property consulting firm E-House: valued at about $60 million
• Rest of regional lender Shengjing Bank: as much as $2.8 billion if all goes for the same price as in August
• Online sales platform FCB Group, which seeks a listing by the first quarter in 2022: Evergrande’s remaining 90% stake could be worth $18 billion based on a March valuation
• Listing of its tourism business, which Evergrande fully owns: potential fundraising size is unclear
• Listing of its water business: could raise several hundred million dollars, people familiar said in July
• Some of its mainland residential properties, particularly in the heart of Greater Bay Area Shenzhen: the size of any sale is unclear

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With assistance from Bloomberg