China Evergrande pre-empts US$19 billion cash crunch as investors drop repayment option in Shenzhen reorganisation plan

Most investors who poured in 130 billion yuan into Hengda unit have agreed to drop a repayment option in much-delayed Shenzhen deal

New terms should ease concerns about the group’s liquidity, according to CGS-CIMB analyst

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China Evergrande’s billionaire chairman Hui Ka-yan is taking steps to implement the group’s three-low (debt, leverage, cost) and one-high (turnover) development strategy. Photo: Xinhua

Published: 8:30am, 30 Sep 2020Updated: 8:30am, 30 Sep 2020

China Evergrande Group, the nation’s biggest developer by sales, has unveiled steps to avert a 130 billion yuan (US$19.1 billion) cash crunch after the stock slumped this month amid concerns about its debt load.

The company said most investors owning 36.5 per cent in its key unit called Hengda Real Estate will maintain their holdings for an undisclosed period of time, according to an exchange filing late Tuesday. They agreed to not require the company to buy back their stakes, it added.

More than 20 builders, private equity firms, venture capitalists and money managers poured 130 billion yuan over three rounds of funding in 2017 to help Hengda repay its debt and buy land, in exchange for the equity stakes and promise of big dividends.

The repayment hinges on a successful business reorganisation with Shenzhen Special Economic Zone Real Estate & Properties Group (Shenzhen SEZ). The restructuring, which has been delayed several times since it was first proposed in October 2016, has a December 31 deadline.

Hui Ka-yan, during the company’s 2017 annual results briefing in Central, Hong Kong. Photo: David Wong

The four-year snag has exposed Evergrande’s financial standing to much speculation, including a viral document last week that purportedly showed the developer pleading for speedy approval from provincial authorities. Evergrande has dismissed it as fake and pure defamation.

The stock slumped 9.5 per cent on Friday to HK$13.78 in Hong Kong, bringing the decline this year to 36 per cent. It has since risen by almost 20 per cent this week to HK$16.50. Evergrande had 835.5 billion yuan of debt on June 30, according to most-recent published accounts.