Evergrande Units, Bonds Surge on Report of Units’ Stake Sale
(Bloomberg) -- Stocks of China Evergrande Group subsidiaries and the developer’s bonds rose Tuesday after Reuters reported that the company was in sale talks with investors.
Evergrande is discussing with state-owned and private companies to sell stakes in its new-energy vehicle and property service units, both listed in Hong Kong, Reuters reported, citing an unidentified source. Evergrande is also seeking buyers for its urban renewal projects in Shenzhen, Reuters cited two sources as saying.
The property management arm jumped as much as 16.7% in Hong Kong trading, while the EV startup spiked as much as 10.5%. The developer’s 8.75% dollar bond due 2025 rose 2.5 cents on the dollar to 43 cents, set to reverse three days of declines, Bloomberg-compiled prices show.
“This could be a positive catalyst to ease some investors’ concerns on its liquidity woes,” said Patrick Wong, a Bloomberg Intelligence analyst.
Evergrande has been offloading assets and listing units in an attempt to stave off a cash crunch. Evergrande’s equity and bond holders have been rattled in recent weeks by a slew of reports about wary banks and unpaid dues to suppliers. Last week, a Caixin report saying that creditor lawsuits against Evergrande would be consolidated triggered another slump in the developer’s bonds.
Potential sources of future funding for Evergrande include placements for its listed electric vehicle and property management units, and initial public offering for operations including its beverage business, FCB, and amusement park and tourism properties, Fitch Ratings said earlier. The Shenzhen-based developer has some $80 billion worth of equity in non-property businesses that could help generate liquidity if sold, Agnes Wong, a Hong Kong-based analyst with BNP Paribas SA, wrote in a June report.
While the EV unit is one of the better valued assets of Evergrande. It reported a widening preliminary net loss for the first half of about 4.8 billion yuan ($740 million), almost double that of a year earlier, according to a filing late Monday. The loss was mainly attributable to development of new EV businesses “in its early investment stage,” it said.
Evergrande is struggling to allay concerns by investors and ratings firms. S&P Global Ratings cut Evergrande by two levels to CCC last week, just four notches above the designation for defaulted borrowers. It’s the second downgrade by S&P in less than two weeks and follows similar moves by Fitch and Moody’s Investors Service.
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