Sale of $ 2.6 billion of Evergrande unit shares fails as Chinese authorities seek to calm nerves

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  • Evergrande formally abandons the sale of its stake
  • Officials in force give assurances
  • Real estate company bonds generally recover
  • Weak companies remain in the sights

HONG KONG / SHANGHAI, Oct. 20 (Reuters) – Shaky Chinese real estate giant China Evergrande (3333.HK) has officially abandoned plans to sell $ 2.6 billion stake in one of its key units Wednesday, as Beijing officials came out in force to announce the problems would not get out of hand.

Once China’s best-selling developer and now in debt over $ 300 billion, Evergrande was in talks to sell a 50.1% stake in its Evergrande Property Services branch (6666.HK) to its smaller rival. Hopson Development Holdings (0754.HK).

In a stock exchange filing late Wednesday, Evergrande said the company had reason to believe Hopson had not met the “preconditions to make a blanket offer” for its unit without further details.

In a separate swap brief, Evergrande said unless he sold a $ 1.5 billion stake in Chinese lender Shengjing Bank Co (2066.HK), he had made no progress. significant in the sale of the other assets he put on the block.

The Evergrande revelations came after a number of senior Chinese officials sought to reassure homebuyers and markets that the current woes in the real estate industry could not turn into a full-scale crisis.

Fears that a lack of liquidity at Evergrande, whose liabilities equate to 2% of China’s gross domestic product, could cause economic contagion, have seen many other heavily indebted developers suffer credit rating downgrades, while some smaller ones have already failed.

In comments reported by state media Xinhua and echoing comments by the country’s central bank late last week, Vice Premier Liu He said at a forum in Beijing on Wednesday that the risks were controllable and that the demand for reasonable capital from real estate companies was met.

The chairman of the Chinese securities regulator, Yi Huiman, added at the same forum that the authorities would properly manage default risks and seek to reduce excessive debt more widely.

“(We must) improve the efficiency of the constraint mechanism on debt financing, to avoid excessive financing through ‘high leverage’,” Yi said.

According to Nomura, Chinese real estate developers have a total portfolio of 33.5 trillion yuan ($ 5.24 trillion), which is equivalent to about a third of the country’s gross domestic product.

Evergrande, who epitomized China’s freewheeling borrowing and construction era, has struggled to raise funds to pay off its many lenders and suppliers, as it is expected to or on the verge of defaulting on one of its international obligations.

In its Wednesday filing, Evergrande said it would continue to implement measures “to alleviate liquidity problems” and do its best to negotiate the renewal or extension of its loans with its creditors.

“Given the difficulties, challenges and uncertainties associated with improving its liquidity, there can be no guarantee that the group will be able to meet its financial obligations under the financing documents and other contracts concerned,” he added. he declares.

Creditors have so far said there has been no contact from Evergrande despite weeks of efforts on their behalf. Evergrande will be officially in default if it does not make the payment of the March 2022 bond coupon already overdue by Monday.

Chinese real estate stocks collapse

BLAME GAME

Sources told Reuters on Tuesday that Evergrande was forced to halt the sale of its stake in the property services unit to Hopson after failing to secure a blessing from the Guangdong provincial government, which is overseeing Evergrande’s restructuring.

Some of Evergrande’s international creditors had also opposed the deal, one said. If companies sell assets just before they collapse, creditors have fewer ways to get their money back.

There was also a blame game starting.

Hopson said in a swap brief that he was ready to close the deal but received notice to terminate the transaction from Evergrande on October 13.

Evergrande, Evergrande Property Services and Hopson, whose shares have been suspended since Oct. 4 pending the announcement of the deal, all said they have requested their shares to resume trading in Hong Kong from Thursday. .

The setback to the Evergrande sale comes after Chinese state-owned Yuexiu Property (0123.HK) pulled out of a proposed $ 1.7 billion deal to buy its Hong Kong headquarters in the last week. Read more

RECONSTRUCTION PROCESS

Pan Gongsheng, head of China’s foreign exchange regulator, added to a chorus of officials trying to allay concerns, saying that the excessive tightening of financial institutions and markets in the real estate sector was being gradually corrected, financial magazine Yicai reported.

The comments followed a speech by the Governor of the People’s Bank of China (PBOC), Yi Gang, who said on Sunday that the world’s second-largest economy “is doing well” but faces challenges such as default risks for some. companies because of “mismanagement”. Read more

A transcript of comments released by the PBOC on Wednesday showed Yi that China would fully respect and protect the legal rights of Evergrande’s creditors and asset owners, in accordance with “repayment priorities” set out by Chinese laws.

Strong demand during a sale of Chinese government bonds on Wednesday showed that there were no signs of problems affecting the broader markets.

Official assurances in recent days and some coupon payments from other big developers have helped China high yield debt (.MERACYC) spreads continue to improve after hitting record highs last week.

There was, however, a growing division. While many companies have seen their bond prices continue to gain ground, the Kaisa Group, which was the first Chinese real estate company to default in 2015, has seen its bonds reach new records.

Central China Real Estate became the latest to see its credit rating eroded and, like many of its peers in recent days, was immediately warned that it could happen again.

China’s high-yielding market has started to experience a timid recovery

Reporting by Clare Jim and Meg Shen in Hong Kong and Andrew Galbraith in Shanghai; Written by Sumeet Chatterjee; Editing by Kim Coghill, Nick Zieminski and Richard Pullin

Our standards: Thomson Reuters Trust Principles.


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