Longtime Evergrande Backer Chinese Estates Dumps Shares at Loss, Eyes Full Exit

China Evergrande Group received a fresh gut-punch from a steadfast investor on Thursday, with Hong Kong property firm Chinese Estates revealing that it had dumped 13 percent of its shareholding in the embattled developer at an eye-watering loss and was laying plans to offload its entire stake in the months ahead.

Chinese Estates sold more than 108.9 million shares of Hong Kong-listed Evergrande on the open market in recent weeks out of 860 million shares held, a disposal representing 0.82 percent of the debt-saddled group’s issued share capital, according to a filing with the Hong Kong stock exchange.

The firm controlled by billionaire Joseph Lau, a longtime ally and poker pal of Evergrande chairman Xu Jiayin, offloaded the shares for HK$246.5 million ($31.7 million) at an average share price of HK$2.26 per share, chalking up an expected loss of almost HK$1.38 billion on the sale.

Lau moved to cut his Evergrande losses this week even as other investors took heart after the mainland developer announced on Wednesday that it had arranged to pay interest due on an onshore bond on Thursday. The company did not comment on its plans to meet obligations on an offshore debenture due the same day, with some investors assuming that the payment would be delayed.

Breaking Away

In its statement, Chinese Estates said it may dispose of its remaining stake, representing 5.66 percent of Evergrande’s issued share capital, over the next 12 months, “depending on the prevailing market conditions”.

The news of Chinese Estates’ potential exit came less than a week after the South China Morning Post reported that Lau and his wife, Chan Hoi-wan, had sold 138 million Evergrande shares several times in the past month for about HK$500 million in total.

In its interim report released this week, Chinese Estates posted first-half revenue of HK$726.2 million, down 63 percent year-on-year, and a net loss of HK$35.5 million, swinging from a year-earlier profit of HK$786 million. The firm said the red ink was mainly due to a decrease in dividend income from its Evergrande shares.

The world’s most indebted developer appears to be coming under behind-the-scenes pressure from Chinese authorities to fulfil at least some of its obligations.

Bloomberg reported Thursday evening that regulators had ordered Evergrande to focus on completing unfinished properties and repaying individual investors while avoiding a near-term default on dollar bonds, one of which had an $83.5 million interest payment coming due Thursday. A source told Reuters that holders of the bond weren’t expecting an on-time payment.

Local media reports on Thursday indicated that Evergrande had submitted a number of bankruptcy plans to the central government before the spring festival in February, but that these proposals had been rejected. Now the developer is reportedly facing work shutdowns on 500 of its more than 800 projects after funding dried up.

Markets Soothed

Despite lingering uncertainty about debt payments, Evergrande’s stock shot up 17.6 percent Thursday, after the developer revealed its settlement with onshore bond holders on Wednesday. The company had owed RMB 232 million in interest on the notes, according to Refinitiv, though it did not reveal the amount paid to investors this week.

Thursday’s stock rebound followed a string of losses this week, with the share price still down more than 80 percent in the year to date.

While chairman Xu kept his characteristic silence amid the week’s rout, he offered a pep talk to employees earlier this week in an apparent leaked email thanking them for their hard work and conveying his belief that “Evergrande will be able to step out of the darkest moment as soon as possible”.