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Evergrande’s $2.6 billion asset sale deal fell through

Evergrande's $2.6 billion asset sale deal fell through

Evergrande shares “evaporated” 12.5% ​​after the agreement to sell assets failed

Evergrande shares fell 12.5% ​​in trading on October 21 after a deal to sell part of the group’s multi-billion-dollar assets to Hopson Development Holdings collapsed.

Previously, Evergrande’s attempt to resell the $1.7 billion Hong Kong headquarters building also failed. Photo: AFP

Hopson shares listed in Hong Kong on October 21 closed up nearly 7.6%, while shares Real estate service company Evergrande (Evergrande Property Services) Transactions in this market fell 8%.

Earlier this month, Evergrande initiated some negotiations to sell part of the assets at the subsidiary Evergrande Property Services give Smaller-sized competitor Hopson.

However, late on October 20, Hopson announced that the negotiation to buy back a 50.1% stake in Evergrande Property Services had failed. Evergrande also confirmed the termination of this purchase and sale agreement in a separate notice. According to the filing, the deal to acquire a 50.1% stake in Evergrande Property Services is valued at HK$20.04 billion ($2.58 billion).

Evergrande is the second-largest property developer in China by sales, and the largest issuer of offshore bonds in the industry, with total liabilities of about $300 billion.

There have been repeated doubts that Evergrande’s insolvency could cause a “domino effect” collapse of other real estate businesses in China. Real estate and related industries are an important contributor to China’s economy and account for a quarter of the country’s GDP.

The deal to sell part of the assets to Hopson failed just as Evergrande was nearing the end of a 30-day grace period on $83 million in interest payments to investors in the group’s US dollar bonds. If this interest debt is not paid by October 23, Evergrande will technically be in default.

At the end of October 20, Evergrande said that after selling a $1.5 billion stake in Shengjing Bank at the end of September, the business “did not make any significant progress on selling assets”.

Last week, Reuters cited sources as saying Yuexiu Property, a Chinese state-owned real estate company, canceled its deal to buy Evergrande’s Hong Kong headquarters building, worth 1.7 billion USD.

Evergrande raised capital by issuing bonds and relied heavily on loans to fast scale up operations came under closer scrutiny by the Chinese government last year. Specifically, Beijing has applied a “three red lines” policy for real estate companies to reduce the debt-to-asset ratio of this group of businesses.

But Evergrande has crossed all three “red lines” as of the first half of this year, while Hopson and Yuexiu have yet to cross any of them, according to investment bank Natixis (France).

Evergrande said its contract real estate sales from the beginning of September to October 20 totaled 3.65 billion yuan ($571.1 million), just 1/ 10 compared to the number 38.08 billion yuan in August. Evergrande’s cumulative sales of contract real estate from the beginning of the year to October 20 reached 442.3 billion yuan.

Late last week, Chinese authorities moved to assuage concerns about the worrisome fate of Evergrande and the downturn in the real estate industry.

The People’s Bank of China has confirmed more than once that Evergrande is an isolated case of the real estate industry and that the problem is still “manageable”. Yi Gang, Governor of the Central Bank of China, said that the first measure to be taken is to prevent the risk of Evergrande from spreading to other real estate companies.

At a recent financial forum, China’s Vice Premier Liu He emphasized that the real estate market had individual problems and the need for a reasonable capital injection was being met. However, Mr. Liu He did not mention the specific name Evergrande.

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