HONG KONG (BLOOMBERG) - China Evergrande Group has agreed to sell stakes in its Internet unit for a total of HK$3.25 billion (S$566 million) to ease funding pressure.
The developer will sell 7 per cent of Hong Kong-listed HengTen Networks Group at HK$3.20 apiece to a unit of Tencent Holdings for HK$2.07 billion, according to an exchange filing on Sunday (Aug 1). Evergrande also agreed to sell a 4 per cent stake to an unidentified buyer for HK$1.18 billion.
Evergrande has resorted to offloading assets and spinoffs, as it tries to reassure investors about its financial heath and meet China's so-called "Three Red Lines" - requirements that curb developer debt ratios. So far it's struggled, with its stocks and bonds sinking last month. The world's most indebted developer was downgraded by S&P Global Ratings and Fitch Ratings in recent days due to its weakening access to funds and liquidity position.
Prior to the transaction, the developer had a 37.55 per cent stake in the company, while Tencent held 16.9 per cent, according to disclosures to the exchange. Evergrande's stake will go down to 26.55 per cent and Tencent's holdings will increase to 23.9 per cent after the sale, the filing showed.
It marks Evergrande's second reduction in ownership of the internet unit in more than a month. In late June, it offloaded part of its stake to Ke Liming, owner of a HengTen subsidiary Pumpkin Films.
The deal may help Tencent "protect its existing investment from further turmoil related to Evergrande's finances," Matthew Kanterman, a tech analyst at Bloomberg Intelligence, said in a note on Monday. It may also align Tencent with authorities who are scrutinizing both the tech and property sectors.
HengTen shares surged as much as 55 per cent in Hong Kong trading on Monday morning. Evergrande rose as much as 2.7 per cent before erasing the gains to trade 2.5 per cent lower at 9:51 a.m. local time. The developer has dropped 66 per cent this year.
Evergrande's bond due 2025 indicated higher on Monday morning, rising 0.8 cent on the dollar to 42 cents, set to reverse five days of declines, Bloomberg-compiled prices show.
The Shenzhen-based developer has US$80 billion (S$108.3 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, wrote in a June report. Other potential sources of future funding include placements of its listed electric-vehicle and property management units, and initial public offerings for arms including its beverage business, online home and car sales platform FCB Group, and amusement park and tourism properties, according to Fitch Ratings.
Evergrande has agreed to provide a five-year loan of HK$2.07 billion to HengTen to support its business development, the company added in the filing.