China Evergrande Group’s stock and local bonds soared after the developer took a major step towards avoiding a cash crunch that had threatened to roil the nation’s $50 trillion financial system and reverberate across global markets.
After a turbulent few days during which banks, bondholders and senior government officials became increasingly alarmed about Evergrande’s financial health, the world’s most indebted developer said it reached an agreement with a group of strategic investors to avoid repayments that would have placed a sizable strain on the junk-rated company’s balance sheet.
Chinese regulators pressed the company to reach a deal ahead of the eight-day national holiday that starts on Thursday, according to a person familiar with the matter. Officials were concerned about instability bubbling over in global markets during the holiday, and a potential spill over to China when trading resumes after the break, the person said, asking not to be identified discussing private matters.
The deal buys time for Evergrande to rein in a complex web of liabilities that some analysts have said makes the property behemoth too big to fail. Evergrande owes $88 billion to banks, shadow lenders and individual investors across China and has borrowed $35 billion from bondholders around the world. More than 2 million homebuyers have given the company down payments on yet-to-be-completed properties.
Evergrande shares soared 19% to HK$19.70 in Hong Kong on Wednesday, capping a record 43% rally for the shortened holiday week. The stock jumped last week after the company sought to reassure investors about its finances following a plunge last week.
The local currency bonds also rose, with the 2024 note closing at 88.4 yuan, or 7.8% higher. The 2023 bond jumped 4.9% to 90 yuan, and has rallied from a low of 74 yuan. The dollar debt due 2025 fell 2.3 cents on the dollar to 77.7 cents, Bloomberg-compiled pricing show. Barclays upgraded some of the dollar bonds to overweight, citing the deal.
In another move aimed at shoring up its finances, Evergrande officially filed to spin off its property services business in Hong Kong. The unit had net income of 1.15 billion yuan ($170 million) in the first half of the year, almost three times higher than a year earlier, according to an exchange filing. Huatai Financial and UBS are among banks managing the sale, which could raise as much as 30 billion yuan, according to HSBC estimates.
Evergrande said it’s in talks with the remaining investors on similar deals, without identifying any of them.
The developer has finished negotiations with investors holding 15.5 billion yuan of equity interests, who are seeking further approvals.