Developer decides against special dividend in surprise move

HONG KONG • China Evergrande Group has surprisingly decided against declaring a special dividend after investors were spooked by news that banks and ratings companies are growing wary of the debt-laden developer.

The board chose to cancel the proposal less than two weeks after flagging it to investors. It took into consideration the market environment, the rights of shareholders and creditors, and the long-term development of businesses, according to a statement to the Hong Kong stock exchange yesterday.

Led by chairman Hui Ka Yan, the world's most indebted developer has been trying to convince bond and stock holders that it has ample ammunition to make good on its borrowings, while also countering short-sellers. Its credit rating was cut by S&P Global Ratings late on Monday, the third downgrade by a global firm in about a month.

The decision to forgo the shareholder reward confounded analysts who had reckoned that Evergrande may take one of three routes: a cash payment, a stock dividend, or handing out shares in its higher-value listed subsidiaries.

"It's clearly negative for equity holders," said portfolio manager Eddie Chia at China Life Franklin.

"However, saying and not doing something might spook some bond investors, even though it's relatively neutral given there is no asset or dividend leakage."

Evergrande shares fell 13.4 per cent yesterday in Hong Kong. The stock has lost 59 per cent this year.

Its bond due in 2025 was indicated down after falling 1.5 US cents on the dollar to 51.7 US cents the day before, Bloomberg-compiled data shows.

Evergrande said on July 15 that its board would discuss the special dividend, after the stock slumped 48 per cent from a January high. The announcement briefly triggered a spike in the shares that was erased as investor doubts over the troubled developer turned into panic.

Markets were spooked last week by a loan dispute the developer had with China Guangfa Bank, which led to the freezing of a US$20 million (S$27 million) deposit held by Evergrande's main onshore subsidiary.

The incident, which was later resolved, pointed to "the fragility of the company's funding situation", S&P said, lowering the credit rating by two notches. S&P also cited margin erosion as the developer resorts to aggressive price promotions to accelerate sales.

The investor rout deepened after a Chinese city last week halted its sales at two residential projects and alleged Evergrande did not properly use funds, before a quick resolution the next day.

On top of that, at least four of Hong Kong's largest lenders have stopped providing mortgages to buyers of Evergrande's unfinished apartments in the city. But at least two of them are reconsidering the halts after their decisions were questioned by the Hong Kong Monetary Authority, a Bloomberg report said.

The last time Evergrande doled out a special dividend, in 2018, its earnings were soaring, though bearish bets abounded then too. It has since seen annual profit drops for 2019 and last year, with total liabilities swelling to US$301 billion.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 28, 2021, with the headline 'Developer decides against special dividend in surprise move'. Subscribe