China Evergrande shares jump after developer raises $2.2bn

Shares in China Evergrande jumped on the back of an asset sale that generated $2.2bn in cash and helped to ease investor concerns over the financial health of the world’s most indebted property developer.

The Hong Kong-traded shares of China’s largest property group rose as much as 5.2 per cent on Monday, a day after Evergrande said it had sold a 41 per cent stake in Guanghui Industrial, which focuses on energy development, auto services and logistics, to Shenergy Group.

The shares later pared some of those gains to trade 1.6 per cent higher.

The asset sale, which Evergrande said would enable it to “focus more on its core business”, highlights the company’s push to raise cash at a time when market scrutiny of its more than $120bn debt load has intensified.

Pressure on China’s vast developers has also increased after Beijing drafted new rules designed to curb leverage across the sector. Prices of new homes in the country have soared this year.

Trading in Evergrande’s stock has been subject to wild swings after a purported letter to the government in Guangdong province, where the company is based, in September ignited longstanding worries over its leverage.

$22.3bn


Annual amount Evergrande has pledged to reduced its debt by

The letter centred on a potential cash crunch for the company if it failed to list its mainland Chinese subsidiary by the end of January, which would have entitled investors to reclaim about Rmb130bn ($19bn).

Evergrande furiously denied its authenticity and subsequently announced it had reached an agreement with the majority of the investors that ensured they would not demand repayment.

While the company’s shares bounced back from that incident — and are up more than 10 per cent in the past three sessions — they have remained volatile. The stock is down 28 per cent this year.

In mid-October, Evergrande’s stock plummeted 17 per cent in a single session after it raised just $555m in a share sale that had meant to draw in about $1bn. The incident raised questions over the group’s access to liquidity.

“You never really looked at Evergrande’s share register and saw too many blue-chip names from foreign fund managers . . . it’s largely going to appeal to domestic investors of one kind or another,” said Nigel Stevenson, an analyst at GMT Research, of the company’s bid to raise cash.

Mr Stevenson, who has been bearish on the company, questioned its latest push to deleverage given the company did not appear to be selling other assets, such as investment properties that are earning low levels of income.

Evergrande in March pledged to reduce its debt by Rmb150bn ($22.3bn) a year through to 2022. 

From September 7, it reduced prices on new homes by 30 per cent, which the company said in a statement was “normal sales strategy” at that time of year.

It also announced a planned spin-off in Hong Kong of its property management unit, recently valued at $11bn, which was approved in late September.