China’s Evergrande shares fall after Hopson’s asset transaction fails

China Evergrande Group began returning a small portion of the amount payable to purchasers of investment products weeks after people protested the omission of payment at the Shenzhen headquarters depicted here on September 30, 2021. I did.

Gilles Sabrie | Bloomberg | Getty Images

Beijing — China’s Evergrande shares temporarily fell more than 10% in the opening trade on Thursday after the deal was not signed to sell some of its assets to Hopson Development Holdings.

Hopson shares traded a bit higher, but Evergrande Property Services fell about 9% in the morning trading.

Earlier this month, heavy-duty Evergrande was in talks to sell part of its service division to a small rival, Hopson. However, Hopson announced late Wednesday that negotiations to buy a 50.1% stake in Evergrande Property Services had failed. Evergrande confirmed the closing of the transaction in a separate filing.

According to Filing, the deal would have been worth HK $ 20.04 billion ($ 2.58 billion).

Evergrande is China’s second-largest developer by revenue and the largest offshore bond issuer in the industry, with total debt of approximately $ 300 billion. Concerns about the company’s debt repayment capacity have raised concerns about its ripple effect on the Chinese real estate market, which, along with related industries, accounts for about a quarter of GDP.

Trading of the three stocks resumed on Thursday, more than two weeks after the two companies closed trading prior to the “large-scale trading.”

No progress in asset sales

Hopson’s deal collapsed as Evergrande was nearing the end of the 30-day grace period, watching carefully to pay US dollar-denominated offshore bond investors $ 83 million in interest. If the developer fails to pay by Saturday, it will be technically the default.

Evergrande said late Wednesday that “no significant progress has been made in selling the Group’s assets” since it sold its $ 1.5 billion stake in Shengjing Bank in late September.

Reuters quoted sources last week that China’s state-owned Yuexiu Property withdrew its $ 1.7 billion transaction to buy Evergrande’s Hong Kong headquarters building.

Both companies didn’t immediately respond to CNBC’s request for comment.

Evergrande’s reliance on debt for its rapid expansion was strengthened by government scrutiny last year with the deployment of a “three redline” policy by real estate companies to reduce the ratio of debt to assets.

According to Natixis, China Ever Grande violated all three red lines as of the first half of this year, but Hopson and Koshihide did not cross any of these lines.

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According to Evergrande, as of October 20, the company’s contract real estate sales since early September were 3.65 billion yuan ($ 571.1 million).

This is 90% less than in August, when sales of contracted properties were 38.08 billion yuan.

According to Evergrande, the annual contract sales of real estate by October 20 was 442.3 billion yuan.

Authorities are seeking a guarantee

China has sought to mitigate the fear of transmission that previously surprised the global market.

Since Friday, the People’s Bank of China has repeatedly stated that the Evergrande Group is an individual manageable case.

Most recently, the central bank’s governor, Yi Gang, said Wednesday that the first step in the response was to prevent the risk of the Evergrande Group from spreading to other real estate companies.

Deputy Prime Minister Liu He said at a financial forum Wednesday that individual problems were occurring in the real estate market, meeting the need for rational financing. Liu did not mention Evergrande by name.

China’s Evergrande shares fall after Hopson’s asset transaction fails

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