China property giant Evergrande withdraws plan to sell $2. 6 bn stake

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China property giant Evergrande withdraws plan to sell $2. 6 bn stake

HONG KONG SHANGHAI Reuters - - Teetering Chinese property giant China Evergrande formally abandoned plans to sell a $2.6 billion stake in one of its key units on Wednesday as Beijing officials went out in force to say the problems would not spin out of control.

Once China's top developer and now reeling under more than $300 billion of debt, Evergrande was in talks to sell a 50.1% stake in its Evergrande Property Services arm to smaller rival Hopson Development Holdings.

In a stock exchange filing late on Wednesday, Hopson said that the company had reason to believe that Evergrande had not met the prerequisite to make a general offer for its unit without elaborating further.

In a separate exchange filing, Evergrande said that barring its sale of a stake worth $1.5 billion in Chinese lender Shengjing Bank Co, it had made no material progress in selling other assets it has put on the block.

Evergrande's disclosures came after a number of top Chinese officials had sought to reassure homebuyers and markets that the current woes in the property sector would not be allowed to turn into a full-scale crisis.

Worries that a cash crunch at Evergrande, whose liabilities are equal to 2% of China's gross domestic product, could cause economic contagion have seen swathes of other heavily-indebted developers hit with credit rating downgrades, while some smaller ones have already defaulted.

In comments reported by state media Xinhua and echoing words from the country's central bank late last week, Vice Premier Liu He told a Beijing forum on Wednesday that the risks were controllable and that reasonable capital demand from property firms was being met.

The chairman of China's securities regulator, Yi Huiman, added at the same forum that authorities would properly handle the default risks and look to curb excessive debt more broadly.

We need to improve the effectiveness of the constraint mechanism on debt financing, to avoid excessive financing through 'high leverage', Yi said.

Chinese property developers have total outstanding debt of 33.5 trillion yuan $5.24 trillion according to Nomura, equivalent to roughly a third of the country's gross domestic product.

Evergrande, which has epitomised China's freewheeling era of borrowing and building, has been scrambling to raise funds to pay its many lenders and suppliers amid expectations it is about to default on one of its international bonds.

In its Wednesday filing, Evergrande said it would continue to implement measures to ease liquidity issues and would use best efforts to negotiate for the renewal or extension of its borrowings with its creditors.

In view of the difficulties, challenges and uncertainties in improving its liquidity, there is no guarantee that the group will be able to meet its financial obligations under the relevant financing documents and other contracts, it said.

Creditors have so far said there has been no contact from Evergrande despite weeks of effort on their behalf. Evergrande will officially be in default if it doesn't make an already overdue March 2022 bond payment by Monday.

Sources told Reuters on Tuesday that Evergrande had been forced to sell its property services unit to Hopson after failing to win the blessing of the Guangdong provincial government, which is overseeing Evergrande's restructuring.

Some of Evergrande's international creditors had also opposed the deal, one of them said. If companies sell assets just before they collapse, creditors have less to claw their money back with.

There was also a blame game starting though.

Evergrande said in an exchange filing that it had been prepared to complete the deal but had received a transaction termination notice from Hopson on Oct. 13.

Evergrande, Evergrande Property Services, and Hopson, which have had trading in their shares suspended since Oct. 4 pending the deal announcement, all said they had requested for their shares to resume trading in Hong Kong from Thursday.

The sale setback for Evergrande comes after Chinese state-owned Yuexiu Property pulled out of a proposed $1.7 billion deal to buy its Hong Kong headquarters last week.

Pan Gongsheng, head of China's foreign exchange regulator, added to a chorus of officials trying to soothe concerns, saying excessive tightening by financial institutions and markets on the property sector was gradually corrected, financial magazine Yicai reported.

Those comments followed a speech by People's Bank of China Governor Yi Gang, who said on Sunday https: www.reuters.com. com world china faces - challenges-mismanagement - certain-firms - says-pboc - head - 2021 - 10 - 17 that the world's second largest economy is doing well but faces challenges such as default risks for certain firms due to mismanagement. A transcript of the comments released by the PBOC on Wednesday showed Yi also saying that China will fully protect and respect the legal rights of Evergrande's creditors and asset owners, in line with repayment priorities laid out by China's laws.

Strong demand at the sale of Chinese government bonds on Wednesday showed there was no sign of the troubles impacting the wider markets.

The official reassurances in recent days and some coupon payments from other major developers helped China high-yield debt spreads continue to improve after hitting record high levels last week.

However, there was an increasingly stark divide. While many firms saw their bond prices continue to regain ground, Kaisa Group saw its bonds hit new record lows in 2015, which was the first Chinese real estate firm to default in 2015.

Central China Real Estate became the latest to see its credit rating cut and was immediately warned by many of its peers in recent days that it could happen again.