Ever­grande sells non-core busi­ness

Com­pany re­mains heav­ily in­debted, with fall­ing prof­its and vul­ner­a­ble to in­ter­est rate in­creases

China Daily (USA) - - BUSINESS | MARKETS - By LIN WENJIE in Hong Kong cher­rylin@chi­nadai­lyhk.com

China Ever­grande, one of the Chi­nese main­land’s top two real es­tate com­pa­nies, has de­cided to sell all of its non-core busi­nesses in the grain and oil, dairy prod­ucts and spring wa­ter sec­tors for the ag­gre­gate price of 2.7 bil­lion yuan ($409 mil­lion), in or­der to put more fo­cus on its prop­erty de­vel­op­ment busi­ness, as main­land house prices are go­ing wild re­cently.

The Guang­dong-based de­vel­oper will sell its grain and oil busi­ness for 600 mil­lion yuan, the dairy prod­ucts busi­ness for 300 mil­lion yuan and the spring wa­ter busi­ness for 1.8 bil­lion yuan, ac­cord­ing to a fil­ing made to the Hong Kong Stock Ex­change.

The sales agree­ments were signed on Wednes­day, and Ever­grande will re­ceive 10 per­cent of the value for each sale within three days, with the re­main­der paid out by buy­ers within three years. The com­pany said in the fil­ing that the sale of the three busi­nesses is ex­pected to yield a be­fore-tax gain of 5.7 bil­lion yuan.

The non-core busi­nesses have dragged down the com­pany’s per­for­mance in the past years. For ex­am­ple, the spring wa­ter unit in­curred a 2 bil­lion yuan loss in 2015, fol­low­ing a 2.37 bil­lion short­fall the pre­vi­ous year, ac­cord­ing to the data com­piled by Bloomberg.

An­a­lysts seemed unim­pressed by the com­pany’s move. “I don’t think the dis­posal of the non-core busi­nesses will much help the com­pany’s per­for­mance, be­cause the big­gest prob­lem for Ever­grande is its heavy debt,” Kingston Se­cu­ri­ties Re­search Ex­ec­u­tive Di­rec­tor Dickie Wong Tak-kei told China Daily.

Ac­cord­ing to Ever­grande’s in­terim re­sults, al­though the com­pany reg­is­tered a 12.6 per­cent jump in sales in the first half, its in­come at­trib­ut­able to share­hold­ers slumped 74 per­cent to 2.46 bil­lion yuan, due to the 60 per­cent rise in pay­ments on the com­pany’s per­pet­ual bonds as well as a surge in mar­ket­ing costs.

The share price of Ever­grande rose as much as 3.4 per­cent on the news on Wednes­day morn­ing to a three-week high in Hong Kong, but then the gains were trimmed to 0.37 per­cent in the af­ter­noon to close at HK$5.39. The bench­mark Heng Sang In­dex slightly in­creased 0.2 per­cent to 23,619 points.

Ever­grande’s move is in line with the cur­rently buoy­ant prop­erty mar­ket. Of­fi­cial data showed that av­er­age new home prices in 70 ma­jor Chi­nese cities climbed for 11th months in Au­gust, up 9.2 per­cent from a year ear­lier, and higher than 7.9 per­cent­age growth in July, with eco­nom­i­cally-strong ar­eas re­port­ing dras­tic price rises, and less de­vel­oped ar­eas mark­ing mild price growth.

House prices in Shang­hai, Shen­zhen and Bei­jing rose 37.8 per­cent, 37.3 per­cent and 25.8 per­cent year on year re­spec­tively, com­pared with 33.1 per­cent, 41.4 per­cent and 22.7 per­cent in July.

I ex­pect de­mand for such struc­tured notes to con­tinue grow­ing as the Chi­nese are still look­ing for bet­ter yields given the cur­rent low re­turns on Asian bonds.”

PRO­VIDED TO CHINA DAILY

A China Ever­grande sales­per­son in­tro­duces the prop­erty de­vel­oper’s apart­ment project to cus­tomers at a real es­tate expo in Guangzhou, Guang­dong prov­ince.

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