Chinese property group Hopson Development is reportedly set to buy a 51% stake in the troubled Evergrande group’s property management unit, according to the government-backed Global Times.
It said Evergrande “has been on a selling spree lately, scrambling to raise funds to help resolve its serious debt woes” and that local media said the Hopson deal could be valued at more than HK$40 billion (US$5.14 billion).
Both companies requested a temporary trading halt in their shares on Monday morning ahead of an announcement.
Evergrande said it asked for trading to be suspended pending news about a major transaction, while Evergrande Property Services Group said the announcement constitutes “a possible general offer for shares of the company.”
The firm’s electric vehicle company, which last week scrapped a proposed Shanghai listing, continued to trade and rose more than 31% on Monday. Hong Kong’s Hang Seng Index was down 2.5% at closing.
Hopson said it halted trading in its shares, pending an announcement related to the acquisition of a Hong Kong-listed firm and a possible mandatory offer.
Hopson Development Holdings, which was founded by Mang Yee Chu in 1992, is in better shape than many other Chinese developers. It owns more assets than liabilities, while its profit was improving in the first half with the firm paying a dividend.
Shares of Hopson, which has a market value of HK$60.4 billion ($7.8 billion), have jumped 40% this year and it was rated B+ by Fitch in June.
Evergrande’s property development unit was also profitable in the first half of 2021 and revenue rose compared with a year earlier.
But the Evergrande Group, the parent company which was once China’s top-selling developer, faces what could be one of the country’s largest-ever restructurings as a government-enforced crackdown on debt has left it unable to refinance $305 billion in liabilities.
The vast size of its debt has stirred concerns about the impact on China’s property sector and the broader economy if Evergrande collapses or is liquidated at low prices.
‘CASH TO PAY BILLS’
“Looks like the property management unit is the easiest to dispose in the grand scheme of things, indicative of the company trying to generate near-term cash,” OCBC analyst Ezien Hoo said.
“I’m not sure this necessarily means that the company has given up on surviving, especially as selling an asset means they are still trying to raise cash to pay the bills.”
Beijing has prodded government-owned firms and state-backed property developers to purchase some of Evergrande’s assets, people with knowledge of the matter, Reuters reported last week.
Last week Evergrande said it would sell a $1.5 billion stake in Shengjing Bank, a regional lender, to raise much-needed capital, as it struggles to make interest payments to bondholders.
With liabilities equal to 2% of China’s gross domestic product, Evergrande has sparked concerns its woes could spread through the financial system and reverberate around the world.
Initial worries have eased somewhat after China’s central bank vowed to protect homebuyers’ interests, but the ramifications for China’s economy have kept investors on edge.
Monday’s share trading suspension sent a shiver through the offshore yuan, which fell about 0.3% against the dollar, and weighed on the Hang Seng benchmark index, especially financials and other developers.
“(The) consensus is expecting a restructuring, but authorities to limit systemic risk from Evergrande,” Bank of Singapore analyst Moh Siong Sim said. But there is “a bit of nervousness,” he added.
Guangzhou R&F Properties Co Ltd fell 6%, while Sunac China Holdings and Country Garden stocks came under pressure before paring losses. Shares in Evergrande’s electric vehicle unit rose more than 10%.
Shares in Evergrande have plunged 80% so far this year, while its bonds trade at distressed levels. Shares in its property services unit have dropped 43% as the group scrambles to pay its many lenders and suppliers.
The cash-strapped group said last month that it had negotiated a settlement with some domestic bondholders and that it had made a repayment on some wealth management products, largely held by Chinese retail investors.
Holders of the company’s $20 billion in offshore debt appear further back in the queue and bondholders have said interest payments due on bonds in recent weeks have failed to arrive.
Evergrande faces deadlines on dollar bond coupon payments totalling $162.38 million in the next month.
• Jim Pollard with reporting by Reuters and AFP.