China Evergrande boosts asset sales in bid to stave off cash crunch

Evergrande Real Estate Group Ltd updates

China Evergrande has sold a $420m stake in a Hong Kong-listed internet business as the highly indebted property developer offloads assets in a bid to stave off financial pressures.

The company said on Monday that it had sold a 7 per cent stake in HengTen Networks Group, of which it owned 38 per cent, to a unit of Chinese technology group Tencent for HK$2.1bn (US$270m). A further 4 per cent was sold to an unidentified buyer for HK$1.2bn.

Evergrande has been shedding assets as it faces pressure from both the Chinese government and investors over its debt levels. A flurry of recent issues related to its access to financing has crushed the value of its shares and bonds and raised deeper fears over the property group’s financial health. 

The company’s dollar bonds maturing in 2025 were trading at about 45 cents on the dollar, compared with 85 cents as recently as May.

Beijing’s “three red lines” policy, unveiled last year, requires big developers to reduce their debts according to three balance sheet metrics including having enough cash to cover short term debt.

One option for the developer is to offload the exotic array of stakes it has acquired in non-property businesses during its expansion, which was fuelled by waves of urbanisation in China. These include an electric vehicle company, a tourism group and a bottled water business.

Evergrande has almost $2tn of liabilities, though it noted in March that its interest-bearing debt was down almost a quarter compared with a year earlier to Rmb674bn (US$104.3bn). 

Its business model relies heavily on advance sales of its properties before construction has been completed, an approach that was banned in the Chinese city Shaoyang last month, though that decision was quickly reversed. In Hong Kong, banks including HSBC have blocked mortgages to Evergrande customers for developments in the city, but the lenders were subsequently reported to be reconsidering the move.

The three big US rating agencies, Fitch Ratings, Moody’s and S&P Global Ratings, have downgraded Evergrande’s credit in recent weeks. Last week, S&P noted that the group was still “asset rich” and could potentially list its theme park operations and bottled water unit.

The rating agency added that Evergrande “may monetise some of its property development and rental property assets”. It noted that the developer still had a more than 200m square metre land bank in China’s biggest and most developed cities as well as “urban redevelopment projects and vast land reserves in second- and third-tier cities”.

The company’s shares rose 7 per cent on Monday. Evergrande’s stock is down 62 per cent this year, hitting the wealth of chair Hui Ka Yan, formerly China’s richest man.

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