Chinese property giant Evergrande is poised to collect at least $5 billion from a sale of a majority stake of its property management asset. To date, this sale would be the most significant one for the debt-ridden company if and when it pushes through.
Evergrande is one of China’s best illustrations of a company fallen from grace. Once the country’s biggest property group, it now faces a staggering debt of more than $300 billion. Evergrande’s misfortunes have largely worried global investors, specifically as China’s biggest borrower has been toppled.
The property group announced on Monday that it has requested a stoppage in the trading of its shares in Hong Kong. In addition, its spin-off company Evergrande Property Services Group also requested a trading halt, citing that it was entertaining “a possible general offer” of company shares.
According to a report of state-backed Chinese news outfit Global Times, the buyer of 51% ($5.1 billion, HK$40 billion) of Evergrande’s stake is Hopson Development.
Worries still loom
Despite the announcement of the sale, there remains skepticism on the health of China’s property sector and the country’s overall economy. Indeed, analysts are optimistic that the sale means the company is doing everything in its power to meet obligations. However, it also means that the company is “raising cash to pay the bills.”
While 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.
Ezien Hoo, OCBC analyst, said that the sale of Evergrande’s asset means that, all things being considered, the property management arm appears to be the most dispensable asset.
Fantasia Holdings gets credit rating downgrade
Meanwhile, the property sector suffered another blow as Fantasia Holdings, Evergrande’s smaller rival, defaulted on a $206 million payment deadline.
In response, credit rating agency Fitch downgraded the firm’s credit rating four notches.
Compared to Evergrande, Fantasia Holdings is a small fish. Yet its missed payment adds to increasing worries over a crunch within China’s property sector, which could further clamp down on the country’s already lagging economy.
Evergrande’s $5 billion cash raised from the sale will more or less cover the company’s global bond payments within the next six months. A total of $500 million of coupon payments are due at year-end. In addition, its $2 billion-dollar bond will mature come March next year.
Conversely, Hopson Development’s shares spiked 40%. It’s now valued at nearly $7.8 billion (HK$60 billion).