China Evergrande shares, bonds bounce after company says making progress on cutting debt

Evergrande also said the Hong Kong stock exchange had approved its plan to spinoff its property management business. PHOTO: REUTERS

HONG KONG (REUTERS, BLOOMBERG) - China Evergrande Group said its debt-cutting measures were working and the Hong Kong bourse had approved its spinoff plan, sending the property developer's shares up on Monday (Sept 28) after a selloff last week.

Shares climbed 21 per cent at the close in Hong Kong, erasing last week's tumble.

A volatile session for Evergrande's dollar bonds saw its note due next year end the day up 3.9 cents on the dollar at 90.4 cents, according to prices compiled by Bloomberg. The company's onshore bonds due 2024 rose 14.4 per cent to 75.3 yuan.

Investors had dumped China Evergrande's shares and bonds on Friday after a leaked document - later dismissed by the company as a fabrication - suggested the nation's second-biggest property developer by sales had sought government help to avert a cash crunch.

The company said total indebtedness had fallen by 53.4 billion yuan (S$10.8 billion) over the six months to Sept 24 when the document appeared online, while financing costs had dropped 2.24 per cent and it had prepaid 43.5 billion yuan of loans due after Sept 25.

China Evergrande's borrowings totalled 835.5 billion yuan at June-end, of which onshore trust loans and bank lending made up 41 per cent and 29 per cent respectively.

"In the 24 years since the establishment of the company, the company has borrowed loans across 20,523 transactions. There has never been any late payment of interest nor overdue repayment of principal," chairman Hui Ka Yan said in a statement.

The developer is under pressure to slash debt as China's government tackles what it considers excessive borrowing in the real estate development sector with new debt ratio caps.

The Hong Kong-listed stock had fallen over 25 per cent this year on concern over competition as the pandemic keeps offices shut and buyers at home.

The company said aggregated contracted sales amounted to 504.9 billion yuan as of Sept 24, up 11.4 per cent from the same period a year ago, and cash on hand was 204.6 billion yuan as at June 30.

It said it aimed to achieve 200 billion yuan contracted sales in September and October through nationwide sales promotions launched earlier in September.

China Evergrande also said the Hong Kong stock exchange had approved its plan to spin off its property management business, providing the firm a channel to raise funds. The proposed float is expected to raise about US$2 billion (S$2.75 billion), according to Reuters' publication IFR.

Further capital could come from the proposed initial public offering and listing on Shanghai's Sci-Tech Board of its unit China Evergrande New Energy Vehicle Group.

Investors across Asia are watching Evergrande closely after losses in the company's offshore notes spread to high-yield debt around the region last week. The developer is not only Asia's biggest junk bond issuer, it's also one of the most systemically important companies in China, with 293 million square metres of land reserves and projects in 237 cities as of the end of last year.

The biggest near-term worry surrounding Evergrande relates to an agreement the company struck with some of its largest investors. It gives them the right to demand their money back if Evergrande fails to win regulatory approval for a backdoor listing on the Shenzhen stock exchange by Jan. 31. The repayment could amount to 130 billion yuan (S$26.2 billion), and at least one of the investors has signaled it would be unwilling to extend the deadline.

Evergrande has said it won't raise new funds through the listing, but the transaction could allow the company to achieve a higher valuation and thus easier access to future financing.

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