Hong Kong : Shares of debt-laden China Evergrande Group (3333.HK) jumped on Wednesday after it confirmed that it is in talks to sell certain assets, as the move could ease cash flow pressure amid market speculation over a potential restructuring.
Shares of Evergrande, the country’s most indebted property developer, jumped as much as 12% in morning trading, after the firm said in a filing on Tuesday that the proposed sales included stakes in Hong Kong-listed units Evergrande New Energy Vehicle (0708.HK) and Evergrande Property Services (6666.HK).
Shares of EV units rose 9%, while the property management unit surged 16.4%, Reuters reports.
Reuters reported on Monday about the sale talks, which also include the bulk of Evergrande’s urban renewal projects in top-tier southern city Shenzhen.
The developer has been struggling to raise funds amid concerns over its financial health and the potential systemic financial risks it poses.
Rating agency S&P downgraded Evergrande to CCC from B- on Aug. 5, having already downgraded it by another two notches within the preceding fortnight. S&P estimated Evergrande has over 240 billion yuan ($37.14 billion) of bills and trade payables from contractors to settle over the next 12 months, of which around 100 billion yuan is due within 2021.
Raymond Cheng, a managing director of CGS-CIMB Securities, estimated Evergrande could raise about $3.2 billion from the stake sales in the two units, which would then improve the company’s net gearing by 10%, down to 90%.
“The latest development is positive for Evergrande and also illustrates its determination to deleverage further,” he said.
Recently, Evergrande had sold shares in internet unit HengTen Networks (0136.HK) and smaller peer China Calxon Group (000918.SZ) to raise cash.
The firm has also financed through share pledges. According to corporate search engine Tianyancha, Evergrande had pledged its shares in Xinjiang Guanghui Industry Investment and Evergrande Life Insurance to Shengjing Bank at the end of July.
There is increasing speculation that Evergrande may head to a restructuring, after China decided last week that lawsuits against Evergrande across the country will be centrally handled by the Guangzhou Intermediate People’s Court.
Barclays said previous cases including Tsinghua Unigroup and HNA Group where litigations were centralized have become distressed before entering into restructuring.
Early this week, Evergrande’s onshore bond custodians Guotai Junan and CSC Financial said in separate filings that they limited bond trades to only institutional investors from Monday.
“We view it as a step to limit individual investor participation and prepare for potential restructuring in the future,” Nomura said in a trading note.
