- Evergrande sells 18% stake in HengTen for $273.5 mln
- An Evergrande default is still highly likely -S&P
- Country Garden Services raises $1 bln via a share placement
- Agile issues HK$2.4 bln convertible bonds
- Vanke urges staff to cut spending, create a ‘war-time atmosphere’
As the cash-strapped China Evergrande Group (3333.HK) struggles to avoid a debilitating default on its debts, the developer is selling its entire stake in streaming services firm HengTen Network Group (0136.HK) for HK$2.13 billion ($273.5 million).
However, for the world’s most indebted developer a default is still “highly likely” despite its recent bond coupon payments because it has a bigger test in March and April next year, facing a total of $3.5 billion maturities in dollar bonds, according to a November 18 S&P Global Ratings report. It stated:
“We still believe an Evergrande default is highly likely. The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely.”
As it grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds, the Shenzhen-based real estate company has been stumbling from deadline to deadline in recent weeks.
From the sale of the 18% stake in HengTen, in which Chinese gaming and social media giant Tencent Holdings (0700.HK) holds around a 20% share, Evergrande would book a loss of HK$8.5 billion.
Its wholly-owned unit has entered into an agreement with Allied Resources Investment Holdings Ltd, owned by investor Li Shao Yu, to sell 1.66 billion HengTen shares at HK$1.28 per share, a discount of 24% to its closing price on Wednesday.
Since early this month, the latest share disposal extends Evergrande’s sell-down of its HangTen stake from 26.55% in the secondary market.
Despite shares of Evergrande closing down 5.7%, HengTen, which streams and produces film and television programs and has been described as China’s Netflix by Chinese media, surged 24.9%.
According to Duration Finance, Evergrande’s bonds due March 2022 rose 1.997 cents to 32.2 on the dollar.
Within five business days from the date of the agreement, 20% of the deal consideration will be payable while the remainder will be completed within two months, as highlighted by the developer in the filing.
Evergrande failed to pay coupons totaling $82.5 million due on November 6. The restless investors wait to see if it can meet its obligations before a 30-day grace period expires on December 6.
As liquidity in the offshore bond market dries up due to fears over contagion from Evergrande’s troubles, other Chinese property developers are also stepping up financing efforts via share sales. Property sales and new construction are collapsing.
From placing 4.5% of enlarged shares, Country Garden Services Holdings (6098.HK), the property services unit of top developer Country Gardens (2007.HK), raised $1 billion on November 18, two sources with direct knowledge of the matter told Reuters.
On Wednesday, 150 million new shares were sold by the company at HK$53.35 each, a 9.5% discount to the last traded price of HK$58.95. Its shares were on Thursday suspended from trading, while those of parent Country Garden dropped 5.1%.
Convertible bonds worth HK$2.4 billion were sold by a smaller rival Agile Group based on the initial exchange price of HK$27.48 per share of its property management unit A-Living Smart City Services (3319.HK), as confirmed on Thursday.
On November 18, shares of A-Living tumbled 12.8% to HK$21.
To repay its $190 million senior notes due Thursday, Agile said it had remitted funds.
Castor Pang, head of research of Core Pacific in Hong Kong said:
“The market has expected fundraising activities in the sector because if mainland China does not loosen liquidity, it’ll be difficult for the property firms to get large loans from financial institutions.”
He also stated that slowing home sales were also hurting developers’ cash-flow.
Early this week, the new issuance followed a share sale and stake disposal in its property management unit (1516.HK) by Sunac China (1918.HK), among the top four developers in the country, raising a total of $949.70 million.
Through a rights issue earlier in November, CIFI Holdings (0884.HK) also raised $214.5 million while a total of HK$4.8 billion was raised by Shimao Services (0873.HK) via a new share placement as well as convertible bonds.
Besides the debt market pressures, Chinese property developers are also facing stiff challenges from an array of unprecedented policy tightening steps by Beijing to curb speculative buying.
On Tuesday, China Vanke (000002.SZ) told its staff they need to raise their “crisis awareness” and cut unnecessary spending akin to being in “wartime”, according to a person with direct knowledge.
With the last-minute bond payment last week, Evergrande once again averted a destabilizing default but the reprieve did little to alleviate strains in the country’s wider property sector from a liquidity crunch.
Its new coupon payments totaling more than $255 million are due on December 28. Its other creditors at home have put it on the spot and a shadow has been cast over hundreds of its residential projects by a stifling funding squeeze.
Last month, two people with knowledge of the matter told reporters that Chinese authorities have urged Evergrande Chairman Hui Ka Yan, 63, to use some of his personal wealth to help pay bondholders.
Today, according to filings and a person with knowledge of the matter, its founder is freeing up funds from luxury assets including art, calligraphy, and three high-end homes.
($1 = 7.7889 Hong Kong dollars)