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Shares of China Evergrande Group and its property management arm were halted from trading in Hong Kong on Monday ahead of a potential asset sale, as the world's most indebted developer rushes to sell its core assets for cash to stave off a liquidity crunch.
Evergrande Property Services Group said trading was suspended pending an announcement under the city's takeover code about a "possible general offer" for its shares, according to a regulatory filing.
The offer could come from another China-based developer Hopson Development, which is said to be buying a 51 per cent stake that values the unit at HK$40 billion (US$5.1 billion), Chinese financial news portal Cailian reported, citing people familiar with the matter. Hopson was also suspended from trading in Hong Kong for a potential takeover announcement, it said in a filing.
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Evergrande did not immediately respond to a request for comment on Monday. Its shares have plunged 83 per cent to HK$2.95 on Friday from this year's high of HK$17.26 on January 19, erasing US$24.4 billion of market value.
Evergrande had 1.97 trillion yuan (US$305 billion) in total liabilities on June 30, and concerns have been mounting this year about its ability to service its massive debt load, particularly after it failed to repay contractors and suppliers on time. It also appeared to have asked for more time to pay the interests on some offshore dollar bonds in recent weeks.
China takes a hard look at Evergrande's projects to ring fence any collapse from hurting their jurisdictions
The company has engaged in a years-long spending spree to diversify its business beyond property development, expanding into everything from wealth management to electric vehicles (EV), draining cash. The liquidity squeeze has worsened as Beijing adopted new rules designed to tamp down speculative property price bubbles.
The "three red lines" requirements adopted by the People's Bank of China in August of last year limited the ability of developers to borrow, making it more difficult for Evergrande and other developers to borrow from banks and cover their funding needs between the start of building a property and the time they sell a flat.
Evergrande had about 240 billion yuan (US$37 billion) in short-term borrowings, from bank loans to offshore bonds, that are due by the end of June 2022, according to its half-year report. That is nearly as much as the 259 billion yuan collectively owed in the next 12 months by its three closest competitors: Country Garden, China Vanke and Sunac China Holdings.
It remains unclear whether Evergrande made a coupon payment of US$83.5 million on offshore debt due on September 23, or a separate payment of US$45.2 million last week. The company has a 30-day grace period before it can be declared in default on the bonds.
Credit rating agency Fitch Ratings said last week that it was likely Evergrande missed the payment due on September 23 on a US$2.03 billion bond, which reaches maturity in March.
On Sunday, Bloomberg, citing people familiar with the matter, said Evergrande had guaranteed a US$260 million bond by an entity called Jumbo Fortune Enterprises, with an effective maturity date of Monday and could potentially be found in default within five days if the principal is not paid.
Hui Ka-yan, Evergrande's chairman, at the company's 2018 annual results announcement in Hong Kong. Photo: Nora Tam alt=Hui Ka-yan, Evergrande's chairman, at the company's 2018 annual results announcement in Hong Kong. Photo: Nora Tam
As of June 30, the developer had a portfolio of completed properties worth 144 billion yuan and a stable of properties under development worth 1.3 trillion yuan.
However, Evergrande has warned it is facing difficulty selling homes as a result of the negative news surrounding the company, saying it expected a "significant continuing decline" in contracted sales in September. It also has been tapping these property assets to pay off suppliers as its liquidity crisis worsened this year.
A number of prominent shareholders and bondholders have cut their exposure to Evergrande in recent weeks as its prospects have become more cloudy.
China Estates Holdings, Evergrande's second-largest shareholder, dumped 108.9 million shares in the open market in August and in September and said it would record a loss of HK$1.38 billion in its other comprehensive income segment for the full year as a result. China Estates, the sole cornerstone investor in Evergrande's 2009 initial public offering in Hong Kong, said it would seek to sell its remaining stake depending on market conditions.
Last week, China Strategic Holdings said an indirect, wholly-owned subsidiary sold 70 million shares of China Evergrande New Energy Vehicle Group, its EV unit, for HK$159.6 million.
Big banks and fund managers, including HSBC and UBS, also reduced their exposure to cash-strapped Evergrande in recent weeks as its troubles multiplied and it faced downgrades by major credit rating agencies.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.