Chinese property giant Evergrande Group has come up with a new solution as debts in its book become uncontrollable. The real estate group has announced it will sell stake in its Internet unit for over $400 million. By doing so, it trims down around 11% of it's exposure in the internet unit.
The official papers were filed with the stock exchange on August 1. Evergrande Group has agreed to sell a stake of its Hong Kong-listed HengTen Networks Group Ltd. internet unit to Tencent Holdings Ltd.
The breakdown of 11% stake sale is as follows: 7% to Tencent Holdings Ltd for Hk$ 2.07 Billion and the remaining 4% stake is being sold to an undisclosed party for HK$ 1.8 Billion.
Evergrande is China's second-largest property developer in terms of revenue and has a presence in Fortune Global 500 list as well. But now due to increasing liquidity pressures, it has been labelled as the World's most indebted property developer and it makes sense that China would not have liked this. To comply with Three Red Lines regulation in China that curb debt ratios, Evergrande had to make a move.
Just last week, the company received a downgrade from B to CCC from credit rating agency 'Fitch' due to a worsening financial situation. The global data analytics company S&P also changed outlook to 'negative' and dropped credit rating by two ranks. CCXI of China said that Evergrande's repayment ability with current financial conditions will take a toll and hence also downgraded its outlook to 'negative'.
With the most recent development of stake sale, investors and stakeholders of Evergrande are being assured that the company will try to maintain more liquidity in the coming days to get away from it's spiralling debt trap and liquidity pressures. It has almost $300 billion on the liabilities side of the balance sheet with high-interest bonds that are bound to make things nasty. $7.4 billion worth of bonds are set to mature in 2022, starting with $2 billion in bonds coming due next March.
Evergrande also saw its stock and bond values tumble in the past few weeks. Its stock was priced at HK$5.5 a piece last week, down 28% in value. Evergrande's share is down 60% year-to-date. However, the internet unit of Evergrande in which the company sold stake named Hong Kong-listed HengTen Networks Group Ltd. saw it's stock rise more than 20% on the news of stake sale ending three days losing streak.
After the divestment, Evergrande's stake in the internet subsidiary will come down to 26.55% from 37.55%. Tencent's stake will rise from 16.9% to 23.9%, as per exchange filings.
Furthermore, Evergrande will grant a 5-Year loan of HK$ 2 billion to HengTen Networks Group Ltd. The proceeds of the advance will be used for business development purposes, as per declaration in exchange filings.
Saqib Malik is an independent journalist, who can be reached at email@example.com.