Financial markets nervous as Evergrande sells majority stake to Hopson

China Evergrande will sell a majority stake in its property management business for more than $5 billion (€4.3 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 largest-ever 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 per cent stake in the property business for more than 40 billion Hong Kong dollars (€4.43 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.

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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 of in the grand scheme of things.”

Hopson stands in good stead compared with other property developers in China, owning more assets than liabilities and improving profit in the first half.

If the deal goes ahead at the price reported by the Global Times, it represents a roughly 17.5 per cent discount to the services’ group’s December 2020 listing valuation.

Nervousness

With liabilities equal to 2 per cent of China’s gross domestic product, Evergrande has sparked concerns its troubles could spread through the global financial system.

Nervousness has eased after China’s central bank vowed to protect homebuyers’ interests, but ramifications for China’s economy has kept investors on edge.

Monday’s share trading suspension knocked the offshore yuan, which fell about 0.3 per cent against the dollar, and weighed on the Hang Seng benchmark index.

“It is definitely a positive move towards solving Evergrande’s liquidity crisis and we expect more to come,” said Gary Ng, senior economist for Asia Pacific at Natixis.

“However, having said that, offloading some assets may not be totally sufficient. The key for Evergrande is to get project construction going and to sell inventory.” – Reuters