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Evergrande eyeing $5 billion property unit sale; rival Fantasia misses payment

EconomyOct 04, 2021 03:51PM ET
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© Reuters. FILE PHOTO: The China Evergrande Centre building sign is seen in Hong Kong, China, September 23, 2021. REUTERS/Tyrone Siu

By Tom Westbrook and Donny Kwok

HONG KONG (Reuters) -Debt-saddled China Evergrande is set to raise more than $5 billion by selling a majority stake in its property management arm, Chinese media said on Monday, a deal which would be the struggling giant's largest asset sale yet if it goes ahead.

Once China's top-selling property group, Evergrande is facing one of the country's largest-ever defaults as it struggles with more than $300 billion of debt. Its fate is also unsettling global markets wary about the fallout of one of China's biggest borrowers toppling.

Evergrande on Monday said it requested a halt in the trading of its shares in Hong Kong pending an announcement about a major transaction. Evergrande Property Services Group, a spin-off listed last year, also requested a halt and said it referred to "a possible general offer for shares of the company."

China's state-backed Global Times said Hopson Development was the buyer of a 51% stake in the property business for more than HK$40 billion ($5.1 billion), citing unspecified other media reports. Hopson also said it had suspended its shares, pending an announcement related to a major acquisition of a Hong Kong-listed firm and a possible mandatory offer.

Neither Hopson nor Evergrande responded to requests for comment on the Global Times report.

Analysts said the possible deal signals the company is still working to meet its obligations. But it also underscored concerns about the rest of China's property sector and the broader economy if there is a fire-sale of Evergrande's assets.

"Selling an asset means they are still trying to raise cash to pay the bills," said OCBC analyst Ezien Hoo. "Looks like the property management unit is the easiest to dispose in the grand scheme of things."

There was another key development in the sector on Monday too as one of Evergrande's smaller rivals, Fantasia Holdings', said it had missed a $206-million bond payment deadline.

Credit ratings agency Fitch had slashed the firm's credit rating by four notches earlier in the day, too, after the firm revealed it had underwritten another bond that it had previously not disclosed on its books.

With a market value of $415 million, Fantasia is a minnow. But its missed deadline adds to worries of a sector-wide crunch that could put further pressure on China's already slowing economy.

The $5 billion Evergrande would earn from its reported sale meanwhile would theoretically cover the firm's international bond payments for the next six months. It has around $500 million in coupon payments due by the end of the year, followed by a $2-billion dollar bond maturity in March.

The price represents a roughly 17.5% discount to the Services Group's December 2020 listing valuation, although Evergrande's group shares have slumped 80% since then.

In contrast, Hopson's shares have jumped 40% this year making it worth around HK$60 billion ($7.8 billion).

NERVOUSNESS

Evergrande's property services business, which says it managed a total contracted floor area of 810 million square metres at the end of June, was also profitable in the first half of 2021, based on its financial statements.

With liabilities equal to 2% of China's gross domestic product, Evergrande has sparked concerns its troubles could spread through the global financial system.

Nervousness has eased after China's central bank vowed to protect homebuyers' interests, but ramifications for China's economy kept investors on edge - particularly as signs of distress have begun spreading to Evergrande's peers.

Monday's share trading suspension knocked the offshore yuan, which fell about 0.3% against the dollar, and weighed on the Hang Seng benchmark index.

Still, the possible deal activity lifted shares in Evergrande's electric vehicle unit by 29% but cast a pall over regional stocks and global markets. [MKTS/GLOB]

"It is definitely a positive move towards solving Evergrande’s liquidity crisis and we expect more to come," said Gary Ng, senior economist Asia Pacific at Natixis.

"However, having said that, offloading some assets may not be totally sufficient, the key for Evergrande is to get project construction going and to sell inventory."

Shares in Evergrande have plunged 80% so far this year, while its bonds have held steady at distressed levels.

The group said last month it had negotiated a settlement with some domestic bondholders and made a repayment on some wealth management products, largely held by Chinese retail investors.

Holders of the company's $20 billion in offshore debt appear further back in the creditor queue and bondholders have said interest payments due in the past few weeks have failed to arrive.

Evergrande faces deadlines on dollar bond coupon payments totalling $162.38 million in October.

($1 = 7.7868 Hong Kong dollars)

Evergrande eyeing $5 billion property unit sale; rival Fantasia misses payment
 

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Comments (9)
Khwarizmi Algebra
Khwarizmi Algebra Oct 05, 2021 12:16AM ET
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Regardless of any news that may come, the fact is all chinese now are not welling to buy homes after seeing how evergrande’s clients lost their money.
ben sc
ben sc Oct 04, 2021 12:10PM ET
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Liabilities equal 2% of China's GDP??????? 5 billion sale seems desperate and a drop in the bucket. If they're dumping assets who is buying them?
Darryl Allen
Darryl Allen Oct 04, 2021 11:48AM ET
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Foreshadowing huge Chinese real estate market crash. China's slowing demographic growth can't support the development sector. They built high rises with no demand to pad their GDP. That's all gonna come back to ****
Nordin Mohamad
Nordin Mohamad Oct 04, 2021 10:31AM ET
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hope they will treat external investors the same as domestic or bye bye china for ever...
Nina Keung
Nina Keung Oct 04, 2021 6:48AM ET
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CCP already said they will not bail Evergrande out around 10 days ago (Chinese media)!
Chris Johnson
Chris Johnson Oct 04, 2021 12:52AM ET
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We haven't seen nothing yet... The China crackdown has just started
Edward Chong
Edward Chong Oct 04, 2021 12:52AM ET
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becos there is nothing to see. its juz a halt.
Chris Johnson
Chris Johnson Oct 04, 2021 12:52AM ET
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Edward Chong Well... IMO you would have to blind not to see what's going on in China. Of course Evergrande is not the only developer having problems. They are all forced into buying land at insane prices by the CPC who needs the revenue from selling land to fund the whole circus
Thomas DeVito
Thomas DeVito Oct 03, 2021 10:40PM ET
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Wonder how long before all the WMPs fall. Everyone thought they were risk free..... noobs
Amy Carbob
Amy Carbob Oct 03, 2021 10:04PM ET
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Bail out coming soon
Jeff Chevalier
Jeff Chevalier Oct 03, 2021 10:04PM ET
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Not so sure. It may, but China doesn't have to play the political game like the US does. They don't have the problem of lobbyists being deep in their pockets.
tom joe
tom joe Oct 03, 2021 10:04PM ET
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Jeff Chevalier  Lobbyists have nothing to do with it.  Did you even bother to read?
Craig Garrett
Craig Garrett Oct 03, 2021 9:46PM ET
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It should be interesting how the CCP spins this news over the next 24 hours. One way or another they will try to make it sound like everything is okay.
Bryant Carrero
Bryant Carrero Oct 03, 2021 9:46PM ET
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Is this why the futures just dropped?
John Dunn
John Dunn Oct 03, 2021 9:46PM ET
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they dont think it will spill over to the U.S. I dont see how it doesn't
Lake Lot
Lake Lot Oct 03, 2021 9:46PM ET
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Sean Livingstone
Sean Livingstone Oct 03, 2021 9:46PM ET
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Ccp reporting has been reliable so far... They only report what happen. It's our media that's scaring people.. Lol
 
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