Evergrande hits another high on aggressive debt repayment

PUBLISHED : Tuesday, 06 June, 2017, 8:28pm
UPDATED : Tuesday, 06 June, 2017, 8:28pm

China Evergrande Group shares hit another all-time high on Tuesday as the developer vows to repay all of its perpetual bond by the end of June.

Prices once surged by as much as 9 per cent in early trading in Hong Kong to touch HK$17.36, but tapered off at noon. The stock closed the day at HK$16.66, after rising 4.8 per cent, and with a market value standing at HK$217.4 billion.

The property giant, also the country’s most-indebted developer, said it had redeemed 70 per cent of its outstanding perpetual bonds.

It also said it expected to redeem all the remaining perpetual bonds by the first half of the year.

“This is much faster than the company had promised,” said Raymond Cheng, a property analyst at CIMB Securities.

By the end of 2016, the developer owed more than 100 billion yuan in perpetual bonds, a high-interest debt. Interest costs for the bonds amounted to 10.6 billion yuan last year.

The debt repayment implied a considerable earnings growth in 2017, Cheng said, forecasting that Evergrande’s core earnings would increase by over 100 per cent from the previous year.

The developer has continued to release good news in the past few weeks, prompting share prices to set new highs.

Its contracted property sales in the first five months reached 183 billion yuan, a 66 per cent year-on-year rise.

Evergrande announced a second round of 13 strategic investors contributing to 39.5 billion yuan in funds last week, ahead of a planned back-door listing of its property arm in Shenzhen. Together with investments from the first batch of investors, the company has raised a total of 70 billion yuan in pre-IPO financing, which is a boost to its deleveraging effort.

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On Monday, Moody’s has upgraded the company’s ratings outlook from negative to stable, citing improved liquidity position due to its strong contracted sales and active debt maturity management.

Share prices of Evergrande have doubled in the past month, and tripled since the beginning of the year.

“Yet we think the company would still be one of the most indebted big developers,” Mizuho Securities’ analyst Alan Jin wrote in a note, saying that the debt ratio will remain nearly 200 per cent, regardless of the significant improvement.