World’s most indebted developer battles short-sellers again

HONG KONG: The world’s most indebted developer is duking it out with short-sellers again.

China Evergrande Co has spent HK$6.3bil (RM3.5bil) in a buyback spree since March 29, two days after short interest started climbing from a trough. Such battles between Evergrande and bearish investors have played out before – and once more the developer is coming out on top.

The buybacks have helped propel Evergrande shares up 75% in Hong Kong this year, making it one of Asia’s top performers. That’s a timely development for the company ahead of a planned backdoor listing on the mainland, as higher share prices could translate into a better valuation in Shenzhen. How the short-sellers fare will largely depend on whether Evergrande, led by chairman Hui Ka Yan, will be able to pull off future buybacks and a mainland listing.

“It’s a wrestling match,” said Francis Lun, Hong Kong-based chief executive officer of Geo Securities Ltd. Short-sellers will lose if Evergrande is able to list on the mainland after propping up prices, while bears will win if the company is unable to continue the buybacks, he said.

Bearish bets have risen from a four-year low of 8% of free float on March 27 to 14.57% as of April 25, according to IHS Markit Ltd data. Evergrande is the second-most shorted stock in the MSCI China Index after Fullshare Holdings Ltd, which tumbled on Tuesday after being was targeted by short-seller Glaucus Research Group.

Evergrande’s buyback pace since March 29 dwarfs a previous spree that started at the end of 2015 and accounts for about one-quarter of all the repurchases announced in Hong Kong this year. In an unusual move, Evergrande published an advertorial in a local newspaper on April 20, saying that the stock repurchases will increase the developer’s competitiveness and create more value for shareholders. The Guangdong-based developer is trading at about 2.4 times the latest book value, compared with the one time average for Chinese developers.

“From a valuation perspective, if Evergrande stops buying back shares, it will drop eventually,” said Toni Ho, an analyst at RHB OSK Securities Hong Kong Ltd.

The company’s Hong Kong-based officials didn’t return calls seeking comment.

Evergrande shares on April 25 jumped to the highest level since listing in November 2009, with trading volume more than five times the three-month daily average.