EGRNF China Evergrande Group (CE)

By Xie Yu and Joanne Chiu 

HONG KONG--China's most-indebted property developer averted a near-term cash crunch, sending its shares and bonds sharply higher Wednesday, a surprising turnaround from less than a week ago.

China Evergrande Group said a group of investors agreed not to force it to cough up more than $12 billion to repurchase their stakes in a major subsidiary. Another of its businesses separately filed documents for a Hong Kong listing that could raise between $2 billion and $3 billion in the coming months, according to a person familiar with the matter.

Shenzhen-based Evergrande is Asia's largest junk-bond issuer and was China's largest developer by contracted sales last year. It is a sprawling conglomerate, with projects in various stages of development all over the country.

The company has borrowed heavily in China and offshore as it grew during the past decade. As of June it carried outstanding debt totaling 835.5 billion yuan, equivalent to $122.6 billion--47% of it scheduled to mature within a year, according to the company's interim report. Evergrande also has been slashing prices of some properties to improve sales, and analysts say the heavy debt load has put it in a tight liquidity spot.

Last week, its Hong Kong-listed shares sold off sharply and its bonds plunged to distressed levels after documents circulated online suggesting Evergrande was having liquidity problems and had sought government help. The bond selloff--which pushed yields into the high teens--triggered more worries it could have difficulty rolling over its debts.

The company decried those documents as fake and said it had never missed a debt payment in its 24-year operating history, and was moving forward to raise funds and reduce debt. Evergrande shares rebounded sharply.

They climbed further Wednesday, jumping 19% to levels last seen on Aug. 17. Evergrande's debt also recovered, with one U.S. dollar bond due May 2021 bid at 95 cents on the dollar Wednesday, up from the low 80s Friday, according to Tradeweb.

Evergrande's near-crunch involved Hengda Real Estate, a subsidiary that produces most of its revenue and profit. In 2016 and 2017, Evergrande raised 130 billion yuan, equivalent to $12.7 billion, by selling a little more than a third of Hengda. But along the way it also offered to buy back those stakes if the subsidiary weren't listed in mainland China by January 2021.

With the deadline looming, Evergrande said Tuesday evening that holders of 86.3 billion yuan in equity interests in Hengda had agreed not to require the repurchase, and that it had completed negotiations or was in talks with the rest.

Evergrande also released photos showing its chairman, Hui Ka Yan, at a Sept. 29 signing ceremony in Beijing with representatives of more than a dozen Hengda investors. They included Zhang Jindong, chairman of Suning.com Co., one of China's largest home-appliance retailers, and Wang Wenyin, a copper tycoon who controls the private Amer International Group Co.

"The public show of support is important to shore up confidence in Evergrande," said Zhou Chuanyi, a credit analyst at research firm Lucror Analytics. "If Evergrande's ship sinks, everyone suffers."

For Evergrande bondholders, "this is the most important development we've seen so far," said Luther Chai, an analyst at CreditSights in Singapore. He expects prices of the company's bonds to recover significantly.

On Tuesday, Evergrande's property-management unit filed a listing application to Hong Kong's stock exchange. Evergrande Property Services Group Ltd. reported profit of 1.15 billion yuan ($168.7 million) in the first half of 2020, nearly triple that of a year earlier, according to an exchange filing. Huatai Financial and UBS Group AG are among banks managing the sale.

In August Evergrande raised 23.5 billion Hong Kong dollars, equivalent to $3 billion, by selling more than a quarter of the unit to investors including Tencent Holdings Ltd. and Chan Hoi Wan, one of Hong Kong's richest women and the wife of property tycoon Joseph Lau.

Ms. Chan and her Hong Kong-listed company Chinese Estates Holdings Ltd. are also large shareholders in Evergrande, holding a combined stake of 9%, according to FactSet.

Write to Xie Yu at Yu.Xie@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

(END) Dow Jones Newswires

September 30, 2020 07:29 ET (11:29 GMT)

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