Evergrande stock surges after raising $ 1.5 billion. But another debt payment looms

The Chinese real estate developer has agreed to sell part of its stake in a local bank for nearly 10 billion yuan (about 1.5 billion dollars). Evergrande made the announcement on Wednesday, pushing its shares up nearly 16% in Hong Kong.

The company will sell an almost 20% stake in Shengjing Bank to the state-owned Shenyang Shengjing Finance Investment Group.

In recent days, speculation has been Assembly that officials can ask public companies to support Evergrande.

More than a third of Shengjing Bank is owned by the real estate giant, and the lender has already been hit by Evergrande’s problems.

In a purse deposit, Evergrande said its “liquidity problem negatively affected Shengjing Bank significantly” and the lender demanded that all proceeds from the sale be used to resolve “financial liabilities” between the two parties. The conglomerate will retain a 14.75% stake after the transaction closes.
This means that Evergrande will likely not be able to use the money for any of their other debts. Last week he didn’t process an interest payment of $ 83.5 million on a exceptional bond denominated in dollars. The company faces another bond interest payment of nearly $ 50 million Wednesday.

Although Evergrande has not publicly discussed the payments owed on its dollar-denominated bonds, the company reached an agreement last week on interest owed on a yuan bond.

Evergrande is China’s most indebted developer, with more than $ 300 billion in liabilities. That includes nearly $ 20 billion in international bonds, according to data provider Refinitiv Eikon.

Investors are waiting to see whether the company will meet its obligations to other bondholders or come close to default. Some have even raised the possibility that such an event could turn into The moment of the Lehman brothers, although many analysts say it is unlikely.

Fitch Ratings lowered Evergrande’s rating yet again on Tuesday, saying the group was “probably a failure [an] payment of interest on its senior unsecured notes.

China takes action to protect consumers

In recent weeks, following mass protests and a rout of world markets, Beijing has focused on limiting the fallout from the crisis and protecting ordinary people, although the government has refrained from directly commenting on Evergrande.
In a declaration this week, the People’s Bank of China pledged to “maintain the healthy development of the real estate market and protect the rights and legitimate interests of housing consumers.”

While not specifically referring to Evergrande, the central bank has injected liquidity into the financial system over the past few days to help stabilize the situation and calm nerves.

On Tuesday, he announced that he had added 100 billion yuan (about $ 15.5 billion) to the system, saying it was to maintain liquidity.
Evergrande electric car maker struggles to pay suppliers

Iris Pang, chief Greater China economist at ING, said the move was “a symbolic signal to the market, that the Chinese government is in control of the incident and not letting the incident turn into a crisis.”

Some analysts have warned of potential shockwaves in the world’s second largest economy if the damage is not contained.

Evergrande employs some 200,000 people and said it indirectly helps maintain more than 3.8 million jobs each year.

In China, real estate and its related industries represent up to 20% of the urban workforce, according to Christina Zhu, an economist at Moody’s Analytics.

The increased liquidity “will ensure that providers and contractors related to real estate stay afloat. It really prevents any large-scale layoffs in these industries, ”she told CNN Business.

The Evergrande Center building in Shanghai.

Zhu added that it would also help with another key priority, which is to ensure that work on real estate projects continues so that homebuyers are not “left behind.”

According to a recent analysis of Bank of America, Evergrande has sold 200,000 homes that have yet to be turned over to buyers.

Authorities also appear to be working to limit the fallout in Hong Kong.

Tuesday, Bloomberg reported that the Hong Kong Monetary Authority (HKMA) had asked banks to report their exposure to Evergrande, citing unidentified sources.

In a statement to CNN Business, an HKMA spokesperson said he was maintaining a “regular dialogue with the industry” and “would not comment on the details of our discussions with the banks.”

But the de facto central bank “has closely monitored the credit risk facing the banking sector,” the representative added. “Our assessment is that the overall risk to banking stability remains manageable.”

What's next for Evergrande: bailout, breach or default?

But Pang noted that a central question remains: “what the government wants.”

“[Is] the government being ready for Evergrande to default on all these bonds? This will create volatility in the market. Or does the government want Evergrande to keep operating and operating, building and selling? ”She said.

“We’re still not sure what the government wants… That’s the problem in the market right now.”

– CNN’s Beijing office, Diksha Madhok, Hanna Ziady, Laura He and Julia Horowitz contributed to this report.


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