Evergrande shares plunge after $3.5b asset sale falls through

HONG KONG/SHANGHAI • China Evergrande Group abandoned a deal to sell a US$2.6 billion (S$3.5 billion) stake in its property services unit, sending its shares plunging yesterday.

The setback comes just ahead of the expiry of a 30-day grace period for Evergrande to pay US$83.5 million in coupon payments for an offshore bond. If it cannot pay, China's most indebted developer would be considered in default.

Evergrande said the grace periods for paying the interest on its US dollar-denominated bonds that became due last month and this month had not expired. It did not elaborate.

In a small and rare respite, Evergrande won a more than three-month extension to the maturity of a US$260 million bond beyond Oct 3 after agreeing to provide extra collateral, financial provider REDD reported. A source said Evergrande chairman Hui Ka Yan will put personal wealth in a residential project tied to the bond to ensure it gets completed, paving the way for bondholders to get their dues.

News of the extension came after Evergrande said on Wednesday it had scrapped a deal to sell a 50.1 per cent stake in Evergrande Property Services Group to Hopson Development Holdings as the smaller rival had not met the "prerequisite to make a general offer".

Both sides traded blame for the deal failure, with Hopson saying it is exploring options to protect its legitimate interests. It added that all major banks were positive towards the deal, and a third-party adviser had verified the firm had the resources needed to acquire the 50.1 per cent stake and for a general offer.

The deal is Evergrande's second to collapse amid its scramble to raise cash in recent weeks.

Two sources told Reuters last week that the US$1.7 billion sale of its Hong Kong headquarters had failed amid buyer worries over Evergrande's financial situation.

Evergrande also said that, barring its sale of a stake worth US$1.5 billion in Chinese lender Shengjing Bank, it had made no progress in selling other assets.

The scrapped sale of the stake in Evergrande's property services unit "has made it even more unlikely for it to pull a rabbit out of a hat at the last minute", said a lawyer for some creditors.

Trading in the Hong Kong-listed shares of China Evergrande, its property services unit and Hopson resumed yesterday after a more than two-week suspension.

Evergrande closed down 12.5 per cent and its property services unit dropped 8 per cent while Hopson jumped 7.6 per cent.

Worries that a cash crunch at Evergrande - whose US$300 billion in liabilities is equal to 2 per cent of China's gross domestic product - could cause economic contagion have seen swathes of other heavily indebted developers hit with credit rating downgrades, while some smaller ones have already defaulted.

Since the government started clamping down on corporate debt in 2017, many developers have turned to off-balance-sheet vehicles to borrow money and skirt regulatory scrutiny.

Statements from other developers yesterday exacerbated investor concern of contagion.

Chinese Estates Holdings said it would book a loss of US$29 million from the sale of bonds issued by property firm Kaisa Group Holdings. Modern Land (China) said it had ceased to seek investor consent to extend the maturity date of a dollar bond due next Monday. Its shares were suspended yesterday.

Vice-Premier Liu He told a Beijing forum on Wednesday that the risks were controllable and that reasonable capital demand from property firms was being met.

The chairman of China's securities regulator, Mr Yi Huiman, added that the authorities would properly handle the default risks and look to curb excessive debt more broadly.

Chinese developers have total outstanding debt of 33.5 trillion yuan (S$7 trillion), according to Nomura, equivalent to roughly a third of the country's GDP.

Evergrande, which has epitomised China's freewheeling era of borrowing and building, has been scrambling to pay its many lenders and suppliers amid expectations it is about to formally default on one of its international bonds.

In its Wednesday filing, Evergrande said it would continue to implement measures "to ease the liquidity issues". It added: "In view of the... challenges, there is no guarantee the group will be able to meet its financial obligations."

The developer will officially be in default if it does not make an already-overdue March 2022 bond coupon payment by Monday.

The head of China's foreign exchange regulator, Mr Pan Gongsheng, has added to a chorus of officials trying to soothe concerns, saying excessive tightening by financial institutions and markets on the property sector was being gradually corrected, financial magazine Yicai reported.

That followed comments by People's Bank of China governor Yi Gang, who said on Sunday that the economy is "doing well" but faces challenges such as default risks for certain firms due to "mismanagement".

REUTERS