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As debt-laden real estate developers faced imminent bond payment deadlines, the transaction failed.
China Evergrande Group, the world’s second-largest economy’s most indebted real estate developer, saw its stock price plummet by 14% when it resumed trading on the Hong Kong Stock Exchange after a two-week suspension.
After Evergrande announced the failure of the sale of its $2.6 billion stake in its property services division, a sell-off opened on Thursday.
Evergrande recovered some of its earlier losses, but still fell 9.8% in subsequent transactions. Its property services division fell 5%, while its electric vehicle division fell 10.3%. Hopson Health rose 5.6%.
Shenzhen-based Evergrande used to be China’s best-selling developer, but investors are beginning to worry because of its liabilities exceeding US$300 billion. In recent days, government officials have come forward to indicate that the company’s problems will not get out of control and trigger a broader financial crisis.
Evergrande said on Wednesday that it had cancelled the sale of a 50.1% stake in Evergrande Property Services Group to Hong Kong Hopson Development Holdings Company, because smaller competitors did not meet the “prerequisites for making a comprehensive offer.”
Both parties seem to blame the other party for the setback. Hopson said it would not accept “any substance” of Evergrande’s termination of the sales agreement and is exploring options to protect its interests.
As developers scrambled to raise funds, this deal was the second to fail. Two sources told Reuters last week that the sale of its Hong Kong headquarters for US$1.7 billion failed because buyers were concerned about Evergrande’s severe financial situation.
The latest setback comes at the expiry of the 30-day grace period for Evergrande’s $83.5 million payment as part of its offshore bond payment. If it cannot do so, it will be considered the default.
Evergrande said in a document on Wednesday that the grace period for payment of interest on USD-denominated bonds that expired in September and October has not yet expired. It did not elaborate.
“The cancelled transaction makes it even more impossible [Evergrande] Take a rabbit out of the hat at the last minute,” a lawyer representing some creditors told Reuters that he requested anonymity because he was not authorized to speak to the media.
“Given the payment arrears and grace period is about to expire, people are preparing for a hard default. We will see how the company resolves this issue in negotiations with creditors.”
Evergrande went public in Hong Kong for the first time in 2009, and the IPO raised 70.5 billion Hong Kong dollars (9 billion US dollars), making it the largest private real estate company in China and its founder Xu Jiayin, then the richest man in mainland China.
In 2010, during the expansion boom, Xu Jiabao acquired the then embarrassed Guangzhou Football Team, renamed it Guangzhou Evergrande, and spent huge sums of money to purchase top players and coaches.
The group is also involved in other areas, including bottled water and electric vehicles.
But after the government suppressed developers in August 2020, Evergrande began to falter, forcing the group to sell properties at increasingly large discounts.
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