Asset-sale report spurs US$3.5 billion rally in China Evergrande companies as billionaire seeks to steady ship
- Beleaguered developer says it is holding talks with ‘independent third party investors’ to sell assets and raise cash, according to Reuters
- Companies in the group rallied by 7.3 to 20.5 per cent in Hong Kong for some of their best gains this year
The group was in discussions with state-owned and private companies to sell its stakes in its electric car and property management units, according to a Reuters report. It was also seeking buyers for its urban renewal projects in Shenzhen, the report said, citing people it did not identify.
The group’s board of directors later confirmed in a statement that it was in talks with “independent third party investors” about selling the two units.
China Evergrande jumped 7.3 per cent to HK$5.87 on Tuesday, the most in a week. Its subsidiary China Evergrande New Energy Vehicle rallied 8 per cent, the most this month, to HK$13.20, while Evergrande Property Services Group surged 20.5 per cent to HK$6.70 for its best day since January.
The rally added HK$27.2 billion (US$3.5 billion) to their combined market capitalisation, and comes as a relief for investors who have suffered a rapid slump in their bets this year. More than HK$308 billion has been erased from the three entities this year through Monday, as billionaire founder Hui Ka-yan faced a hostile market in his efforts to steady the ship.
“The move [asset sales] if realised should somewhat help ease the concern of insolvency risk for Evergrande, especially if they can introduce a big state-owned enterprise as strategic investor for the new-energy vehicle and property services units,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities.
The bullish response to the report was in contrast to the mixed signals from the group’s filings about their earnings outlook.
The NEV unit said it expected to bleed 4.8 billion yuan (US$740 million) for the six months to June 30, almost double the 2.45 billion yuan loss a year earlier, according to its Hong Kong stock exchange filing on Monday. It cited research and development costs and the burden of interest payments, among other factors.
Meanwhile, Evergrande Property Services expected to report a 70 per cent jump in profit for the first half, according to its filing last month.
Unable to borrow, Hui has been forced to pare assets after the group failed to meet the thresholds in China’s so-called “three red lines” on corporate leverage, as authorities moved to stem systemic risks among the nation’s indebted developers.
China Evergrande has since slashed its interest-bearing liabilities to 570 billion yuan from a peak of 870 billion yuan in 2020, the company said in a June 30 press statement. It has trimmed its net debt-to-equity ratio to below 100 per cent, in line with one of the three red lines.
