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Evergrande shares halted amid report of unit stake sale

Trading of Evergrande was suspended pending an announcement on a “major transaction,” the developer said Monday in a stock exchange filing.
Image: Bloomberg

China Evergrande Group and its property services arm were halted in Hong Kong stock trading amid a report that the developer agreed to sell a controlling stake in the unit to raise much-needed cash.

Trading of Evergrande was suspended pending an announcement on a “major transaction,” the developer said Monday in a stock exchange filing. Evergrande Property Services Group Ltd. said it was halted before an announcement on a possible offer of shares in the company.

Hopson Development Holdings Ltd. plans to acquire a 51% stake in the property services unit, according to Chinese financial news platform Cailian, citing unidentified people. Cailian amended an earlier report to clarify that the deal would give the unit a valuation of more than HK$40 billion ($5.1 billion). Hopson Development shares were also halted, and its bonds plunged on the news.

Evergrande shares have tumbled 80% this year, and its bonds have sunk to levels that suggest investors are bracing for a default. With more than $300 billion in liabilities, the developer has been trying to sell assets in a bid to raise cash. The saga has roiled financial markets in recent weeks on concern that it may spread to hurt the economy and financial system.

The potential sale “could bring short-term relief” to Evergrande’s liquidity crunch, Bloomberg Intelligence analyst Lisa Zhou wrote in a note. It may also buy time for the developer to fix its offshore funding issues, including a note that matures today, BI credit analyst Daniel Fan said.

Hopson shares were suspended pending an announcement on a “major transaction” involving the acquisition of shares of a listed company, it said in a filing. A representative for Hopson declined to comment on the Cailian report. Evergrande spokespeople didn’t immediately reply to requests for comment.

A deal at the reported valuation would represent a 28% discount to Evergrande Property Services’ current market value of about HK$55 billion. Evergrande said in September that it had been “actively exploring” sales of parts of the unit, along with its electric vehicle arm, though no material progress had been made.

Evergrande’s 8.25% dollar bond due March 2022 rose about 3 cents on the dollar to 28 cents, according to credit traders in Hong Kong. Hopson’s dollar bond due 2023 fell 4.5 cents to 90.5 cents, set for its biggest drop on record, Bloomberg-compiled prices show. Mainland China markets are closed for a national holiday.

Like Evergrande, Hopson is based in the southern Chinese province of Guangdong. Listed on the Hong Kong Stock Exchange in 1998, the company is majority-owned by the billionaire Chu family. Co-founder Chu Mang Yee is described as an “invisible magnate” by Chinese media for his low-profile personality. Property management accounted for just 7% of Hopson’s revenue as of June.

While Evergrande’s onshore bonds suffered regular halts last month, trading in the company’s Hong Kong shares had until now been continuous throughout its latest debt woes.  Under Hong Kong listing rules, an issuer must demonstrate “exceptional circumstances” when requesting a trading halt and has to publish a public update as soon as possible.

Evergrande last requested a stock trading suspension in October 2016, according to data compiled by Bloomberg. Shares of its property unit were halted in January, when it announced it had purchased a rival firm.

Went public

Evergrande’s property services business went public in December, raising $1.84 billion in the sale. At the time, the offering valued the unit at about HK$95.1 billion, making it the second-largest listed property-management company in Hong Kong after Country Garden Services Holdings Co., according to Bloomberg calculations.

The stock has tumbled 43% this year, dragged down by Evergrande’s debt problems. Shares of the developer’s other Hong Kong-listed unit, China Evergrande New Energy Vehicle Group Ltd., haven’t been suspended and were up 8.3% Monday morning, after dropping earlier.

Chinese authorities have been trying to limit any fallout from the Evergrande debacle. Last week, officials met with banks to ease credit for homebuyers and support the property sector, and the government bought out Evergrande’s stake in a struggling lender.

Homebuyers are losing confidence in the embattled developer, which has pledged to deliver projects that have been left unfinished. Evergrande’s contracted sales probably plunged 86% in September from a month earlier, according to China Real Estate Information Corp. figures.

Evergrande has fallen behind on payments to banks, suppliers and holders of onshore investment products, and hasn’t given any indication that it paid two recent dollar bond coupons.

Now it faces a fresh debt test, with the maturity of a bond issued by a related entity. People familiar with the matter have said that a dollar note due Oct. 3 issued at an initial amount of $260 million by Jumbo Fortune Enterprises is guaranteed by Evergrande. As the maturity is a Sunday, the effective due date is Monday.

© 2021 Bloomberg

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China will do a much better job with Evergrande than the US did with its junk/failed banks.

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