China Evergrande shares rally after progress on cutting debt

Rise erases last week's stumble; firm also says HK bourse has approved spin-off plan

Investors across Asia are watching China Evergrande Group closely after losses in the company’s offshore notes spread to high-yield debt around the region last week. The property developer is not only Asia’s biggest junk bond issuer, but it is al
Investors across Asia are watching China Evergrande Group closely after losses in the company’s offshore notes spread to high-yield debt around the region last week. The property developer is not only Asia’s biggest junk bond issuer, but it is also one of the most systemically important firms in China.PHOTO: BLOOMBERG

HONG KONG • China Evergrande Group said its debt-cutting measures were working and the Hong Kong bourse had approved its spin-off plan, sending the property developer's shares up yesterday after a sell-off last week.

Shares climbed 21 per cent at the close in Hong Kong, erasing last week's tumble.

A volatile session for Evergrande's dollar bonds saw its note due next year end the day up 3.9 cents on the dollar at 90.4 cents, according to prices compiled by Bloomberg. The company's onshore bonds due 2024 rose 14.4 per cent to 75.3 yuan.

Investors had dumped China Evergrande's shares and bonds last Friday after a leaked document - later dismissed by the company as a fabrication - suggested the nation's second-biggest property developer by sales had sought government help to avert a cash crunch.

The company said total indebtedness had fallen by 53.4 billion yuan (S$10.8 billion) over the six months to last Thursday when the document appeared online, while financing costs had dropped 2.24 per cent and it had prepaid 43.5 billion yuan of loans due after last Friday.

Evergrande's borrowings totalled 835.5 billion yuan at end-June, of which onshore trust loans and bank lending made up 41 per cent and 29 per cent respectively.

Company chairman Hui Ka Yan said in a statement: "In the 24 years since the establishment of the company, the company has borrowed loans across 20,523 transactions. There has never been any late payment of interest nor overdue repayment of principal."

The developer is under pressure to slash debt as Beijing tackles what it considers excessive borrowing in the real estate development sector with new debt ratio caps.

The Hong Kong-listed stock had fallen over 25 per cent this year on concern over competition as the pandemic keeps offices shut and buyers at home.

Evergrande said aggregated contracted sales amounted to 504.9 billion yuan as at last Thursday, up 11.4 per cent from the same period a year ago, and cash on hand was 204.6 billion yuan as at June 30.

It said it aimed to achieve 200 billion yuan contracted sales in this month and the next through nationwide sales promotions launched earlier in the month.

Investors had dumped China Evergrande's shares and bonds last Friday after a leaked document - later dismissed by the company as a fabrication - suggested the nation's second-biggest property developer by sales had sought government help to avert a cash crunch.

The company also said the Hong Kong stock exchange had approved its plan to spin off its property management business, providing the firm a channel to raise funds.

The proposed float is expected to raise about US$2 billion (S$2.8 billion), according to Reuters' International Financing Review.

Further capital could come from the proposed initial public offering and listing on Shanghai's Sci-Tech Board of its unit China Evergrande New Energy Vehicle Group.

Investors across Asia are watching Evergrande closely after losses in the company's offshore notes spread to high-yield debt around the region last week.

The developer is not only Asia's biggest junk bond issuer, but it is also one of the most systemically important firms in China, with 293 million sq m of land reserves and projects in 237 cities as at the end of last year.

The biggest near-term worry surrounding Evergrande relates to an agreement the company struck with some of its largest investors. It gives them the right to demand their money back if the company fails to win regulatory approval for a backdoor listing on the Shenzhen stock exchange by Jan 31.

The repayment could amount to 130 billion yuan, and at least one of the investors has signalled it would be unwilling to extend the deadline.

Evergrande has said it will not raise new funds through the listing, but the transaction could allow it to achieve a higher valuation and thus easier access to future financing.

Chinese regulators have yet to comment publicly on Evergrande's latest troubles, but the government could play a decisive role in its future. Some analysts have speculated that the firm has failed to get a green light for its listing plan because policymakers are trying to tame sky-high home prices and restrain fund raising by developers.

Whether the authorities will allow Evergrande to run into serious financial difficulties is now one of the key questions facing creditors, shareholders and customers.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on September 29, 2020, with the headline 'China Evergrande shares rally after progress on cutting debt'. Print Edition | Subscribe