Tuesday, January 31, 2023

Evergrande shares soar as bond prepayment eases debt worries

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Chinese shares of Evergrande jumped nearly 17% after the company’s early redemption of a $ 2 billion bond helped allay investor concerns over the indebtedness of the world’s most indebted real estate developer .

The jump in the group’s shares traded in Hong Kong on Tuesday came a day after announcing it would pay HK $ 16.5 billion (US $ 2.1 billion) to repay the convertible bond, which it issued. in 2018 and was to be repaid in 2023.

Evergrande, which in June owed 835.5 billion rmb ($ 128.8 billion), is in debt after spending years in the heart of China’s booming residential real estate market. It has come under intense scrutiny over the past year, as Beijing seeks to limit its influence in the sector. Last March, the company pledged to reduce its borrowing by 150 billion Rmb per year until 2022.

Last summer, the Chinese government unveiled new rules, known as the “three red lines,” in an attempt to curb developer borrowing after house prices continued to rise during the coronavirus pandemic. At the end of last year, the government announced new rules limiting lending to the sector.

In a statement to the Hong Kong Stock Exchange on Monday, Evergrande said the buyout “fully demonstrated the cash strength and sound financial management of the company.” He added that he “is confident that he will meet his target of reducing the interest-bearing debt of 150 billion rmb in 2021”.

The company has also sold assets in recent months to repay debts. In November, Evergrande stock surged after raising $ 2.2 billion sell a stake to Guanghui Industrial, an energy and logistics division. The other sectors of activity of Evergrande include a electric vehicle unit.

The company’s shares fell nearly a quarter in 2020, but rose 15% this year. Reports in September that Evergrande had sought help with a previously planned reorganization from the provincial government in Guangdong, where the company is based, sparked fears of a cash flow crisis. The company has denied the reports.

Evergrande would have been addicted to investors for around 130 billion rmb if a stock Exchange listing of a large subsidiary in Shenzhen did not take place. However, it secured deals with the vast majority of investors and the listing was canceled in November.

Soo Cheon Lee, chief investment officer of asset manager SC Lowy, said Evergrande was “doing the right thing” and the credit market expected the bond to be repaid. But he added that there were still questions about the company’s debt.

“The jury is still out. . . they have a series of bonds maturing over the next few months, ”he said.

Share price rise on Tuesday lead a rally among Chinese developers a day after economic data underscored the pace of the country’s economic recovery, with real estate investment increasing 7% in 2020. Country Garden, another large Chinese real estate group, rose 4% in the Hong Kong trade.

There was one emission frenzy across the broader Asian bond market in the first weeks of 2021, with companies taking advantage of low rates to raise tens of billions of dollars.

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