China Evergrande Soars After Confirming Talks to Sell Assets
Evergrande in Talks to Sell Stakes in EV, Property Services
(Bloomberg) -- China Evergrande Group’s stock and bonds jumped Wednesday after the company said it’s in talks to sell stakes in two of its units, potentially injecting fresh funds into the cash-strapped property firm.
The discussions involve “several independent third-party investors,” the company said in a statement to the Hong Kong exchange late Tuesday. Talks involve Evergrande stakes in its electric vehicle start-up and property services units.
Evergrande closed 7.8% higher in Hong Kong, bringing its three-day gain to 21.7% on expectations the world’s most-indebted developer will ease its cash crunch with asset sales. The electric vehicle and property services stocks also rose for a third day. The firm’s 8.75% dollar bond due 2025 rose 2 cents on the dollar to 45 cents, Bloomberg-compiled prices show.
The troubled property giant has been offloading assets and listing units in an attempt to stave off a liquidity crisis, saddled with more than $300 billion in liabilities. Evergrande’s equity and bond holders have been rattled in recent weeks by a slew of reports about wary banks and unpaid bills to suppliers. Last week, a Caixin report saying that creditor lawsuits against Evergrande would be consolidated triggered another slump in the developer’s bonds.
Assuming Evergrande maintains control of the auto and property services units, the firm may raise about HK$25 billion ($3.2 billion) from selling minority stakes, said Raymond Cheng, a property analyst at CGS-CIMB Securities.
“It’s positive for Evergrande,” Cheng said. “We prudently believe that Evergrande bankruptcy risk may not be as high as bond prices suggested.”
If realized, the sales may help Evergrande reduce its net debt-to-equity ratio by about 10% to 90%, Cheng said, adding he expects the ratio fell to 99% by the end of the first half. Evergrande said in late June that the ratio dipped below 100%, meeting a key debt metric of China’s “Three Red Lines” requirement for property developers.
“The potential asset sales could be wide-ranging,” Daniel Fan, credit analyst at Bloomberg Intelligence, wrote in a note late Tuesday. The company’s unlisted units, such as online sales platform Fangchebao, could also be sold, though likely at a deeper discount, he wrote.
Meanwhile at HengTen Networks Group, Evergrande’s internet service arm, Ke Liming has taken over from Xu Wen as chairman of the board, according to a filing Wednesday. Owner of HengTen subsidiary Pumpkin Films Ltd., Ke bought part of Evergrande’s stake in HengTen in late June. Xu, a former executive of Evergrande, served as HengTen’s chairman since April 2017.
Asset Sales
Potential sources of future funding include placements for Evergrande Property Services Group Ltd. and China Evergrande New Energy Vehicle Group Ltd., and initial public offerings for operations including its beverage business, FCB, and amusement park and tourism properties, Fitch Ratings said earlier.
“Chinese regulators’ recent moves are buying Evergrande time to resolve problems,” said Chuanyi Zhou, a credit analyst at Lucror Analytics, adding in a research note that potential buyers may be linked to state-owned enterprises as other possible bidders are constrained by tight credit.
While the EV unit is one of its better valued assets, 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 night.
Evergrande is struggling to calm the concerns of ratings firms and investors. 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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With assistance from Bloomberg