Deal falls through as debt-ridden property developer faces looming bond payment deadline.
Shares of China Evergrande Group, the world’s second-largest economy’s most indebted property developer, have plunged as much as 14 percent when they resumed trading on the Hong Kong Stock Exchange following a two-week suspension.
Thursday’s opening bell sell-off came after Evergrande announced that a deal to sell a $2.6bn stake in its property services unit had fallen through.
Evergrande recovered some of its earlier losses but was still down 9.8 percent in later trade. Its property services unit dropped 5 percent, while its electric vehicle arm plunged as much as 10.3 percent. Hopson rose 5.6 percent.
Shenzhen-based Evergrande was once China’s top-selling developer but as it struggles with more than $300bn of debt, investors have become concerned. In recent days, government officials to come out in force to say the firm’s problems will not spin out of control and trigger a broader financial crisis.
Evergrande said on Wednesday it had scrapped a deal to sell a 50.1 percent stake in Evergrande Property Services Group to Hopson Development Holdings, a Hong Kong firm, because the smaller rival had not met the “prerequisite to make a general offer”.
Both sides appeared to blame each other for the setback, with Hopson saying it did not accept there was “any substance whatsoever” to Evergrande’s termination of the sales agreement, and that it was exploring options to protect its interests.
The deal is the second one to collapse as the developer scrambles to raise cash. Two sources told the Reuters news agency last week the $1.7bn sale of its Hong Kong headquarters had failed amid buyer worries over Evergrande’s dire financial situation.
The latest setback comes as the expiry of a 30-day grace period for Evergrande to pay $83.5m as part of its payments for an offshore bond looms. If it cannot do so it will be considered in default.
Evergrande in a filing on Wednesday said the grace periods for the payment of the interest on its US dollar-denominated bonds that had become due in September and October had not expired. It did not elaborate.
“The scrapped transaction has made it even more unlikely for it [Evergrande] to pull a rabbit out of a hat at the last minute,” a lawyer representing some of the creditors told Reuters requesting anonymity because he was not authorised to speak to the media.
“Given where things are with the missed payments and the grace period running out soon, people are bracing for a hard default. We’ll see how the company addresses this in its negotiations with creditors.”
Evergrande was first listed in Hong Kong in 2009, raising 70.5 billion Hong Kong dollars ($9bn) in its initial public offering in a debut that made it China’s largest private property company and its founder, Xu Jiayin, the mainland’s richest man at the time.
In an expansion spree, Xu – also known as Hui Ka Yan in Cantonese – bought the then-embattled Guangzhou football team in 2010, renaming it Guangzhou Evergrande and spending a fortune on top-class players and coaches.
The group diversified into other sectors too, including bottled water and electric vehicles.
But Evergrande started to falter after a government crackdown on developers in August 2020, which forced the group to sell properties at increasingly steep discounts.