Internet company HengTen Networks’ shares surge as indebted China Evergrande sells US$418 million stake
- The world’s most heavily indebted property developer will sell a 7 per cent stake to internet giant Tencent and a 4 per cent stake to an unidentified buyer
- The deal may help Tencent ‘protect its existing investment from further turmoil related to Evergrande’s finances,’ says a Bloomberg analyst
Shares of internet company HengTen Networks soared after debt-laden China Evergrande agreed to sell an 11 per cent stake in the company for HK$3.25 billion (US$418 million).
HengTen surged by as much as 55 per cent to HK$5.30 after trading resumed on Monday, following a suspension on Thursday, before settling back to close 48 per cent higher at HK$5.06. Shares of Evergrande rose 7.8 per cent to HK$5.67, while Tencent fell 0.8 per cent to HK$475.
Prior to the transaction, Evergrande had a 37.55 per cent stake in the company, while Tencent owned 16.9 per cent, according to the filing. The deal will take Evergrande’s stake down to 26.55 per cent and Tencent’s up to 23.9 per cent.
Tencent’s purchase of Evergrande’s stake in the mobile video streaming and production company could “help protect its existing investment from further turmoil related to Evergrande’s finances,” said Matthew Kanterman, a technology analyst at Bloomberg Intelligence in a note on Monday. “The move may also align Tencent with authorities who are scrutinising both the tech and property sectors.”
Still, there are concerns it may have put local banks and small suppliers at the back of the queue of creditors.
Last Wednesday, Fitch downgraded Evergrande’s credit rating from “B” to “CCC+”, reflecting its “tight liquidity and high pressure to generate sales to reduce debt”.
“Evergrande’s liquidity is fragile and heavily reliant on renewing short-term banking facilities and trust loans, continued access to trade payables and robust contracted sales to generate cash flow,” the rating agency said.
