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Why Evergrande suspended its shares

Evergrande Automotive R&D Institute Headquarters in Shanghai
Reuters/Aly Song
Grand plans.
  • Ananya Bhattacharya
By Ananya Bhattacharya

Tech reporter

Published

Chinese real-estate behemoth Evergrande, which has been in the eye of a liquidity storm in recent weeks, halted share trading at 9am Hong Kong time today (Oct. 4) as investors awaited confirmation of a rumored takeover of the company’s property management business.

The company, which is on the brink of collapse, announced the suspension “pending the release by the company of an announcement containing inside information about a major transaction,” it said in a filing with the Hong Kong stock exchange.

Chinese state newspaper Global Times reported that a rival property company, Hopson Development, plans to purchase a 51% stake in Evergrande’s property services unit for more than $5 billion. Trading in Hopson was also paused pending an announcement about a “major transaction,” in which the company has “agreed to acquire the shares of a company…listed on the Stock Exchange.”

Will a deal with Hopson fix Evergrande’s debt crisis?

Although the transaction will bring Evergrande some cash in hand, it is a but a drop in its $300 billion-sea of debt, which is equivalent to 2% of China’s entire GDP.

The company is trying to keep its head above the water. “Looks like the property management unit is the easiest to dispose in the grand scheme of things, indicative of the company trying to generate near term cash,” Oversea-Chinese Banking Corporation analyst Ezien Hoo told the Guardian newspaper. “I’m not sure this necessarily means that the company has given up on surviving, especially as selling an asset means they are still trying to raise cash to pay the bills.”

Evergrande is also selling a $1.5 billion stake in Shengjing Bank to a state-owned asset management firm, seeking potential investors for its stakes in China Evergrande New Energy Vehicle Group, and looking to sell its office building in Wanchai for $2 billion.

Is Evergrande’s debt too big to handle?

The real estate colossus has not made much headway on the repayment front. The company, founded by Chinese billionaire Xu Jiayin, has missed payment deadlines on its offshore bonds twice in the last month.

Furthermore, the company has been struggling with falling property sales and a record number of legal disputes with contractors. Bloomberg reported that the debt-laden firm has stopped paying workers at its EV units and fallen behind on payments to equipment supplies, which the company later confirmed.

The ratings for Evergrande—which has also invested in bottled water, a soccer team, and theme parks, among other things—have plummeted and since the start of this year, and its shares have fallen more than 80%. Chinese authorities seem reluctant to come to the rescue.

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