Evergrande to raise $5b from property unit sale
China Evergrande will sell a majority stake in its property management business for more than $5 billion, Chinese media said on Monday, a deal which would be the largest asset sale yet at the debt-laden property developer if it goes ahead.
Once China's top-selling property group, Evergrande is facing what could be one of the country's largestever restructurings as the company is weighed down by debts of around $305 billion. Uncertainty over Evergrande's fate has unsettled financial markets worried about any fallout from its troubles.
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 trading in its shares, pending an announcement related to a major acquisition of a Hong Kong-listed firm and a possible mandatory offer.
Both Hopson and Evergrande did not respond 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 rekindled broader concerns about the risk to China's property sector and economy if Evergrande is liquidated at low prices.
"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." In August, Reuters had reported that Evergrande was in talks with state-owned and private companies to sell stakes in its electric vehicle and property management businesses, citing a source close to the matter.
Beijing has also prodded government-owned firms and state-backed developers to purchase some of Evergrande's assets, people with knowledge of the matter told Reuters last week. Hopson stands in good stead compared with other property developers in China, owning more assets than liabilities and improving profit in the first half.
Shares in Hopson, which has a market value of HK$60.4 billion ($7.8 billion), have jumped 40% so far this year and it was rated B+ by Fitch in June.
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.
If the deal goes ahead at the price reported by the Global Times, it represents a roughly 17.5% discount to the Services' Group's December 2020 listing valuation. With liabilities equal to 2% of China's gross domestic product, Evergrande has sparked concerns its troubles could spread through the global financial system.