China Evergrande trading halt spurs asset sale speculation

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HONG KONG (Businesshala) – Shares of troubled developer China Evergrande and its profitable asset management unit were suspended from trading in Hong Kong on Monday, fueling speculation about a possible asset disinvestment in the cash-starved company.

FILE PHOTO: The China Evergrande Center building sign is seen in Hong Kong, China September 23, 2021. Businesshala / Tyrone Siu

Once China’s best-selling developer, Evergrande is facing what could be one of the country’s biggest restructurings as it is unable to refinance $305 billion in liabilities due to debt action.

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The Hong Kong Stock Exchange gave no reason for the suspension of shares in Evergrande or its arm Evergrande Property Services Group and it was not clear who initiated the suspension. Evergrande did not immediately respond to a request for comment.

But speculation soon turned into an asset sale and the move rekindled broad market concerns about the risk of contagion or a hit to China’s property sector and broader economy if Evergrande collapses or Liquidates at rock-bottom prices.

“It seems that the asset management unit is the easiest one to settle in the grand scheme of things, which is trying to generate near-term cash for the company,” said OCBC analyst Ezine Hu.

“I’m not sure if this means the company has ceased to survive, especially selling an asset that means they are still trying to raise cash to pay the bills.”

Beijing has instigated state-owned firms and state-backed property developers to buy some of Evergrande’s assets, people with knowledge of the matter told Businesshala last week.

Chinese property group Hopson Development said in a statement on Monday that it had suspended trading in its shares, pending an announcement related to a major takeover of a Hong Kong-listed firm and a potentially mandatory offer.

It was unclear whether the deal pertained to Evergrande Group, and Hopson did not respond to a request for further comment. However, Hopson is in good standing compared to other property developers, owns more assets than liabilities, improves profits in the first half and pays dividends.

Shares of Hopson, with a market value of HK$60.4 billion ($7.8 billion), have jumped 40% so far this year and were rated B+ by Fitch in June.

Evergrande’s property development unit also turned profitable in the first half of 2021 and grew revenue compared to a year ago.

Nervousness

With liabilities as much as 2% of China’s GDP, Evergrande has raised concerns that it could spread through the financial system and resonate around the world.

Initial concerns eased after China’s central bank vowed to protect the interests of homebuyers, but the implications for China’s economy put investors on edge.

Monday’s stock trading suspension sent a shudder through the offshore yuan, falling nearly 0.3% against the dollar, and weighing on the Hang Seng benchmark index, particularly financials and other developers.

“(The) consensus is looking forward to a restructuring, but to limit systemic risk to the authorities from Evergrande,” said Bank of Singapore analyst Moh Seong Sim. But there is “a bit of panic”, he said.

Guangzhou R&F Properties Co Ltd fell 6%, while shares of Sunak China Holdings and Country Garden came under pressure before turning losses. Shares of Evergrande’s electric vehicle unit rose more than 10%.

Shares of Evergrande are down 80% so far this year, while its bonds trade at crisis levels. Shares of its asset services unit have fallen 43% as the group scrambles to pay off many of its lenders and suppliers.

The cash-strapped conglomerate said last month that it had entered into settlements with some domestic bondholders and made repayments on some wealth management products largely held by Chinese retail investors.

Holders of the company’s $20 billion in offshore debt appear to be next in line and bondholders have said interest payments due on the bonds have failed to come through in recent weeks.

Evergrande is facing a deadline for dollar bond coupon payments for a total of $162.38 million next month.

($1 = 7.7868 Hong Kong Dollar)

Reporting by Anne Marie Roantree and Donny Kwok; Additional reporting by Tom Westbrook in Singapore; Editing by Kenneth Maxwell and Sri Navaratnam

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