China Evergrande Group, the country’s most indebted property developer, is raising some quick cash this week by selling off assets ahead of a scheduled repayment of a $1.47 billion offshore bond maturing next week.
The Shenzhen-based company led by billionaire Xu Jiayin offloaded a stake worth $570 million in its Hong Kong-listed internet division, HengTen Networks Group, according to a Monday filing with the stock exchange.
Meanwhile, Evergrande will sell over half its stake in smaller developer Calxon for close to $400 million, giving up its control of the company, Reuters reported.
The fundraising moves by Evergrande come as China continues to clamp down on credit to its highly leveraged real estate sector, with other developers including China Fortune Land also having suffered cash crunches in the past year.
Partners Step Up
In its HengTen equity disposal, Evergrande sold 738.8 million shares in the firm to the owner of Pumpkin Films, a video app that HengTen bought last year. Hong Kong-listed HengTen is a mainland internet joint venture formed by Evergrande and Tencent in 2015 that went public through a backdoor listing that same year.
As of 31 December, Evergrande held a 55.64 percent stake in the company and Tencent had 19.32 percent. Together the shares sold to Ke Liming, who founded Pumpkin Films, represent about 8 percent of the internet firm’s issued ordinary shares. Ke was already the owner of 36.99 percent of HengTen at the end of 2020 and will see his stake rise to about 45 percent of the company, while Evergrande’s slice drops to just under 48 percent.
In its sell-down of its Calxon holding, a unit of Evergrande that owns 57.75 percent of the Shenzhen-listed builder will sell 29.9 percent of the company to private equity firm Shenzhen Huajian Holdings for an undisclosed amount and give up its voting rights, according to a Tuesday filing by Calxon.
Shenzhen Huajian is a unit of Shenzhen Huachao Industrial (深圳市華超實業有限公司), which is also known as Guoxiang Holdings — an entity with close ties to the Shenzhen city government.
Evergrande has a history of deals with Shenzhen Huachao, with the investment firm having been among the original backers when the developer agreed to purchase Calxon in 2016 as part of a scheme to secure a mainland listing.
Based on the Friday closing price of Calxon’s now-suspended stock, the sale of its shares in Hangzhou-based Calxon will earn Evergrande RMB 2.5 billion ($388 million).
Evergrande’s asset sales come as the highly leveraged developer reels from its sagging stock price, a ratings downgrade and a report that several large mainland banks have restricted the group’s access to further credit.
Fitch Ratings on Tuesday cut the long-term foreign-currency issuer default ratings of Evergrande and subsidiaries Hengda Real Estate and Tianji Holding to B from B+, with a negative outlook. Fitch also lowered the senior unsecured ratings of Evergrande and Tianji to B- from B and the Tianji-guaranteed senior unsecured notes issued by Scenery Journey Ltd to B- from B.
The negative outlook reflects Evergrande’s weakened access to debt capital markets and heavy reliance on trust loans, the ratings agency said.
Also on Tuesday, Bloomberg revealed that three banks with a combined RMB 46 billion of credit exposure to Evergrande as of June 2020 decided in recent months not to renew loans to the company when they mature this year. The news agency cited sources asking not to be identified discussing private information.
Evergrande’s Hong Kong-listed shares tumbled Wednesday in the wake of Fitch’s comments and Bloomberg’s reporting, down 3.9 percent in afternoon trade. The stock’s price has plunged nearly 30 percent this year to HK$10.46 ($1.35).
Reuters reported on Monday that Evergrande was planning to repay the $1.47 billion bond, which is due next Monday, this week. The developer is seeking to relieve investor fears that have pushed yields to above 29.5 percent on its 5.8 percent 2025 onshore bonds, according to data provider Refinitiv.
Evergrande maintained its position as China’s top developer in 2020, with sales growing even more quickly during the pandemic, but profits slid by more than a quarter.
After frightening the Greater China financial industry with a plea for financial aid last year, the group joined the shift towards fiscal prudence in 2020.
According to an annual financial statement released at the end of March, Evergrande reduced its total debt by 14 percent in the second half of last year to RMB 717 billion as of 31 December. By the end of March, those obligations had been shrunk still further to RMB 674 billion.
The company has said it will further tame its balance sheet in the years to come, with a goal of bringing total debt down to RMB 350 billion by mid-2023.