HONG KONG (BLOOMBERG) - China Evergrande Group's stock and bonds jumped on Wednesday (Aug 11) after the company said it is 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 on Tuesday. Talks include selling Evergrande stakes in its electric vehicle start-up and property services units.
Evergrande jumped as much as 12 per cent in Hong Kong, bringing its three-day gain to 26 per cent on expectations the world's most-indebted developer will ease its cash crunch with asset sales. The electric vehicle and property service stocks also rose for a third day. The firm's 8.75 per cent US dollar bond due 2025 rose two US cents on the dollar to 45 US 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 US$300 billion (S$408 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 would maintain control of the auto and property services units, the firm may raise about HK$25 billion (S$4.37 billion) from selling minority stakes, said CGS-CIMB Securities property analyst Raymond Cheng.
"It's positive for Evergrande," Mr Cheng said. "We prudently believe that Evergrande bankruptcy risk may not be as high as bond prices suggested."
Potential sources of future funding include placements for Evergrande Property Services Group and China Evergrande New Energy Vehicle Group, and initial public offerings for operations including its beverage business, online real estate and automobile marketplace Fangchebao, and amusement park and tourism properties, Fitch Ratings said earlier.
"Chinese regulators' recent moves are buying Evergrande time to resolve problems," said Lucror Analytics credit analyst Chuanyi Zhou, 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 electric vehicle 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 on 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 is the second downgrade by S&P in less than two weeks and follows similar moves by Fitch and Moody's Investors Services.