Finance Evergrande frees funds with HengTen sale amid ‘highly likely’ default

Evergrande frees funds with HengTen sale amid ‘highly likely’ default

Evergrande has been stumbling from deadline to deadline as it grapples with $412 billion in liabilities.
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Troubled Chinese property developer Evergrande is selling its entire stake in streaming services firm HengTen for $HK2.13 billion ($376 million), as the cash-strapped firm boosts efforts to avoid a debilitating default on its debts.

However, S&P Global Ratings said in a report on Thursday a default is still “highly likely” for the world’s most indebted developer – despite its recent bond coupon payments – because it has a bigger test in March and April next year, facing a total of $US3.5 billion ($4.8 billion) maturities in dollar bonds.

“We still believe an Evergrande default is highly likely,” it said.

“The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely.”

The Shenzhen-based real estate company has been stumbling from deadline to deadline in recent weeks as it grapples with more than $US300 billion ($412 billion) in liabilities, $US19 billion ($26 billion) of which are international market bonds.

A wholly owned unit of Evergrande entered into an agreement with Allied Resources, owned by investor Li Shao Yu, to sell 1.66 billion HengTen shares at $HK1.28 per share, a discount of 24 per cent on its closing price on Wednesday.

The latest share disposal extends Evergrande’s sell-down of its HangTen stake from 26.55 per cent in the secondary market since early this month.

Shares of Evergrande closed down 5.7 per cent, while HengTen, which streams and produces film and television programs and has been described as China’s Netflix, surged 24.9 per cent.

Evergrande said 20 per cent of the deal consideration will be payable within five business days from the date of the agreement, while the remainder will be completed within two months, according to the Hong Kong stock exchange filing.

Investors are on tenterhooks as they wait to see if Evergrande, which failed to pay coupons totalling $US82.5 million ($113.4 million) due on November 6, can meet its obligations before the 30-day grace period expires on December 6.

Other Chinese property developers – including Country Garden Services, Agile Group and Sunac China – are also stepping up financing efforts via share sales as liquidity in the offshore bond market dries up due to fears over contagion from Evergrande’s troubles.

On top of the debt market pressures, Chinese property developers are also facing stiff challenges from an array of policy tightening steps by Beijing to curb speculative buying.

Last week, Evergrande once again averted a destabilising default with a last-minute bond payment but the reprieve did little to alleviate strains in the country’s wider property sector from a liquidity crunch.

Evergrande has new coupon payments totalling more than $US255 million ($351 million) due on December 28.

It has come under pressure from its other creditors at home and a stifling funding squeeze has cast a shadow over hundreds of its residential projects.

Chinese authorities have urged Evergrande Chairman Hui Ka Yan to use some of his personal wealth to help pay bondholders, two people with knowledge of the matter told Reuters last month.

Its founder is now freeing up funds from luxury assets including art, calligraphy and three high-end homes, according to filings and a person with knowledge of the matter.