China Evergrande Group’s stock and bonds jumped Wednesday after the company said it’s in talks to sell stakes in two of its units, potentially injecting fresh funds into the cash-strapped property firm.
The discussions involve “several independent third-party investors,” the company said in a statement to the Hong Kong exchange late Tuesday. Talks involve Evergrande stakes in its electric vehicle start-up and property services units.
Evergrande jumped as much as 12% in Hong Kong, bringing its three-day gain to 26% on expectations the world’s most-indebted developer will ease its cash crunch with asset sales. The electric vehicle and property services stocks also rose for a third day.
The troubled property giant has been offloading assets and listing units in an attempt to stave off a liquidity crisis, saddled with more than $300 billion in liabilities. Evergrande’s equity and bond holders have been rattled in recent weeks by a slew of reports about wary banks and unpaid bills to suppliers. Last week, a Caixin report saying that creditor lawsuits against Evergrande would be consolidated triggered another slump in the developer’s bonds.
Assuming Evergrande maintains control of the auto and property services units, the firm may raise about HK$25 billion from selling minority stakes, said Raymond Cheng, a property analyst at CGS-CIMB Securities.
“It’s positive for Evergrande,” Cheng said. “We prudently believe that Evergrande bankruptcy risk may not be as high as bond prices suggested.”
If realized, the sales may help Evergrande reduce its net debt-to-equity ratio by about 10% to 90%, Cheng said, adding he expects the ratio fell to 99% by the end of the first half. Evergrande said in late June that the ratio dipped below 100%, meeting a key debt metric of China’s “Three Red Lines” requirement for property developers.
