Distressed Realtor China Evergrande Group Plans $5B Raise, Trading Halted in Hong Kong

UTC by Bhushan Akolkar · 3 min read
Distressed Realtor China Evergrande Group Plans $5B Raise, Trading Halted in Hong Kong
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To make its bond interest payments, Chinese realtor Evergrande Group raised $5.1 billion by selling a 51% stake to Hopson Development. Asian markets remained under pressure as a result of this matter on Monday trading.

On Monday, October 4, distressed real-estate group China Evergrande announced that it will raise $5 billion by selling half of its stake in its property management unit. Evergrande has entered a deal with Hopson Development who will be the purchaser here.

Citing this major transaction, both Evergrande and Hopson have requested trading halts. The China Evergrande Group has been under the burden of a massive debt which has now skyrocketed to $305 billion. Amid strong concerns of the default, Evergrande is currently undergoing one of the country’s largest debt restructuring.

Evergrande also noted that it requested a trading halt pending the announcement. It also added that the announcement constitutes “a possible general offer for shares of the company.”

As per the announcement, Hopson Development will be buying a 51% stake in the property unit for HK $40 billion or $5.1 billion USD. The episode with the China Evergrande Group has sent shockwaves in China’s real estate sector. Speaking to Reuters, OCBC analyst Ezien Hoo said:

“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. 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.”

Sending Shock Waves in Hang Seng

On Monday’s trade, the Asian market gave a mixed reaction. Hong Kong’s Hang Seng index dropped 2.19% to 24,036.37. Amid the debt worries of Evergrande, investors are monitoring the situation closely. The realtor has recently missed two bond interest payments last week. In a note on Monday, Mizuho Bank wrote:

“Evergrande default related stress may return to the fore as a dollar note worth USD260mn issued by Jumbo Fortune Enterprises, guaranteed by Evergrande, effectively matures today. Nonpayment would constitute a default.”

The effects of the news are also visible in other markets. Japan’s Nikkei 225 shed 1.13% to close at 28,444.89. Similarly, the Topix index also dipped 0.62% to finish the day trading at 1,973.72. The China Evergrande Group has liabilities to the tune of 2% of China’s GDP.

This makes the situation worrisome as the concerns can spread further through the country’s financial system. However, the Chinese government and central bank have stepped in to alleviate the concerns. The People’s Bank of China (PBoC) has vowed to protect home buyers interests’.

Besides, the Chinese government has asked some state-owned firms and property developers to purchase Evergrande’s assets. However, the nervousness regarding the entire episode persists in the global markets.

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