China Evergrande raises US$273 million with exit from HengTen as creditors await payments on local and offshore debt

Embattled property developer faces more deadlines next week on overdue interest for domestic and offshore debt
Evergrande is seeking to avoid a collapse under more than US$300 billion of liabilities while founder Hui Ka-yan injects cash from own pocket

Banking & finance

Chad Bray

Published: 11:32am, 18 Nov 2021

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China Evergrande Group exited its stake in internet company HengTen Networks Group, raising a further HK$2.13 billion (US$273 million) as the embattled developer faces deadlines to pay overdue interest on its debt next week.

Evergrande sold 1.66 billion shares of HengTen to Allied Resources Investment Holdings at HK$1.28 a share, representing a 24.3 per cent discount to its closing price on Wednesday, according to a Hong Kong stock exchange filing on Thursday.

The world’s most indebted developer, Evergrande held a majority stake in Hong Kong-based HengTen as recently as January, but had been selling down its holdings in recent months as part of an effort to manage 1.97 trillion yuan (US$308 billion) in total liabilities as it faces a cash crunch. The sale represented about 18 per cent of HengTen’s outstanding shares.

“Upon completion of the transaction, the company will cease to hold any shares in HengTen,” Evergrande said. The beneficial owner of Allied Resources is Li Shao Yu, it added.

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World’s most indebted developer, China Evergrande Group, buys time to repay more creditors

HengTen’s shares soared as much as 28 per cent in Thursday’s morning session in Hong Kong, following the announcement. The shares had lost nearly 90 per cent of their value since hitting a 52-week high in February. Evergrande tumbled 2.5 per cent to HK$2.73.

The HengTen group is principally engaged in film and television programmes production, distribution and online streaming platform business and other online services. It counts Tencent Holdings and its executive chairman Ke Liming among its other big shareholders.

The sale followed two blocks of HengTen transactions in August and earlier this month amounting to HK$4.37 billion. Today’s exit comes as Evergrande faces a November 23 deadline to make good on US$135 million in missed coupon payments on its offshore debt or face a default, as well as another 118 million yuan interest payment on its onshore debt on November 26.

Evergrande, the mainland’s residential home builder, has been racing to sell off assets in recent months as it tries to avoid collapse amid a liquidity crunch, with its founder and chairman Hui Ka-yan reportedly injecting more than 7 billion yuan in cash from the sale of his personal assets and share pledges.

Evergrande must raise US$366 million by the end of this year to settle outstanding interest payments on its onshore and offshore debt, some already overdue. It also owes money to thousands of vendors and has been turning over properties, in some cases, to resolve its debts.

Heavily indebted property developers, such as Evergrande and Kaisa Group, have been pressured after Beijing instituted new rules designed to stem speculative property bubbles in the property sector.

The “three red lines” measures have made it hard for overleveraged developers to take out bank loans, cutting off an important source of funding and causing some cash-strapped developers to default on their dollar-denominated debt.

Corporate bond defaults, particularly in the property sector, are expected to continue to rise in 2022 after jumping sharply in the first three quarters of this year, according to Moody’s Investors Service.

However, the number and value of such defaults will remain a small portion of the total Chinese onshore and offshore bond markets, the credit rating agency said.

This article appeared in the South China Morning Post print edition as: Evergrande raises further HK$2.13b in HengTen sale as debt deadline looms

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