- China Evergrande Group's stock and bonds jumped Wednesday after the company said it was in talks with the shareholders to inject fresh funds into two of its units, potentially buying over cash.
The discussions involve'several independent third-party investors, said the company in a statement to the Hong Kong exchange late Tuesday. Talks include selling Evergrande stakes in its electric vehicle startup and property services units.
Evergrande jumped as much as 12% in Hong Kong, bringing its three-day gain to 26% on expectations that the world's most-indebted developer would ease its cash crunch with asset sales. The electric vehicle and property services stocks rose another day in a row. The firm's 8,75% dollar bond due 2025 rose 2 cent notes on the dollar to 45 cents, Bloomberg's prices show.
The troubled property giant has been offloading assets and listing units in an attempt to stave off a liquidity crisis saddled with more than 300 billion liabilities. Evergrande's debt and equity holders have been rattled in recent weeks by a slew of reports about wary banks and unpaid bills to suppliers. Last week, a Caixin report saying creditor lawsuits against Evergrande would be consolidated triggered another slump in the developer's bonds.
Evergrande, assuming ownership of the cars and property services would increase, the firm could raise about HK $25 billion from selling minority stakes, said Raymond Cheng, a property analyst at CGS-CIMB Securities.
'It's positive for Evergrande, Cheng said. 'We prudently believe that Evergrande bankruptcy risk may not be as high as bond prices suggested.
Potential sources of future funding include placements for Evergrande Property Services Group Ltd. and China Evergrande New Energy Vehicle Group Ltd. and initial public offerings for operations including its beverage business, FCB, and amusement park and tourism properties, Fitch Ratings said earlier.
'Chinese regulators' recent moves are buying Evergrande time to solve problems, said Chuanyi Zhou, a credit analyst at Lucror Analytics, adding in a research note that potential buyers may be linked to state owned enterprises as other possible bidders are constrained by tight credit.
While the EV unit is one of its better assets, it has reported a widening preliminary net loss for the first half of about 4.8 billion yuan almost double that of a year earlier, according to a filing late Monday night.
Evergrande is struggling to calm the concerns of rating firms and investors. Last week, S&P Global Ratings cut Evergrande to CCC by two levels, just four notches behind the designation of defaulted borrowers. It is the second downgrade of S&P in less than two weeks and follows similar moves by Fitch and Moody's Investors Services.