Evergrande’s second largest shareholder to sell its entire stake

Highlights

  1. China Evergrande’s second largest shareholder will sell its entire stake in the company.
  2. Chinese Estates has already sold 108 million shares of Evergrande in September.
  3. Evergrande shares soared after it made coupon payment on small part of its debt pile.

Chinese Estate Holdings, the second largest shareholder at embattled Chinese property developer China Evergrande Group, has moved to dispose of its entire stake in the company.

The move comes after Evergrande's main unit, Hengda Real Estate Group, paid interest due on a CNY40 billion (US$6.2 billion) bond on time on Thursday. However, the group also has an US$83.53 million coupon payment on an offshore dollar bond that is due on Thursday, but the filing made no mention of this bond.

The Chinese Estates has now sought the disposal mandate to sell the shares it holds at Evergrande. The company earlier held about 6.5% stake in the Evergrande Group – the second largest stake in the debt-laden firm after Ka Yan Hui’s 71% stake.

However, so far in the month of September, Chinese Estates – a rival property developer in Hong Kong – has already sold 108.91 million shares of the Evergrande Group – representing approximately 0.82% of the issued share capital of the crisis-hit company. The company has sold these shares for HK$246.5 million (US$32 million) in the open market.

For now, the disposal mandate would be valid for 12 months. The company further informed its shareholders that if the entire stake is sold, it will realise a loss of about HK$9,486.3 million ($1.22 billion) for the year ending December 2021.

The move comes even as the company’s shares soared 16.30% at Hong Kong exchange at 13:30 hours local time, on the back of liquidity starved property developer cleared off a part of its coupon interest payments.

Evergrande Group has cumulative liabilities of about US$300 billion and has seen its cash reserves plummet due to a slowdown in the Chinese property market – triggered by the crash in the property prices – as well as lack of funding avenues after state-owned lenders in China cut off their credit lines.

The stake sale announcement comes as a jolt to Evergrande group – a move that is likely to dent investor confidence in the company further.

Bottom line:

Dues of Evergrande – worth US$305 billion – make up 2.1% of China’s US$14.35 trillion-dollar economy. This is enough to suck out liquidity from the Chinese financial system – triggering a slowdown in the economy. Now the thing to watch out for is that, whether or not, the company will find some suitor for itself.

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