HONG KONG SHANGHAI - Shares of the delinquent China Evergrande Group jumped on Wednesday after it confirmed that it is in talks to sell certain assets as the move could ease cashflow pressure amid market speculation over a potential restructuring.
Shares of Evergrande, the country's most indebted developer, jumped as much as 12% in the morning trading after the firm said in a filing on Tuesday that proposed sales included stakes in Hong Kong-listed units Evergrande New Energy Vehicle and Evergrande Property Services.
Shares of EV unit rose 9%, while properties management unit rose 16.4%.
Reuters reported on Monday about the sale talks, which also feature the bulk of Evergrande's southern renewal projects in top city Shenzhen.
The developer has been struggling to raise funds amid concerns over its social health and the potential systemic financial risks it poses.
Rating agency S&P downgraded Evergrande from B to CCC after it downgraded it to B by another two notches within the preceding fortnight. S&P estimated Evergrande had over 240 billion yuan of bills and trade payables from contractors to settle over the next 12 months, of which around 100 billion yuan is due by 2021.
Raymond Cheng, a managing director of CGS-CIMB Securities, estimated Evergrande could raise about $3.2 billion from stake sales in the two units, which would then improve the company's net gearing by 10%, down to 90%.
The latest development is positive for Evergrande and also illustrates its determination to deleverage further, he said.
Recently, Evergrande sold shares in internet unit HengTen Networks and smaller peer China Calxon Group to raise cash.
The company also financed through share pledges. According to corporate search engine Tianyancha, Evergrande pledged its shares in Shengjing Bank Inc. and Evergrande Life Insurance end of July to Xinjiang Guanghui Industry Investment company.
There is increasing speculation that Evergrande may head to a restructuring in China after Evergrande decided last week that the lawsuits against Evergrande across the country will be handled centrally by the Guangzhou Intermediate People's Court.
Barclays said previous cases including HNA Group and Tsinghua Unigroup where litigations were distressed have become distressed, before entering in restructuring.
Early this week, Evergrande's onshore bond custodians Guotai Junan and CSC Financial announced in separate filings that they limited their bond trades to only institutional investors on Monday.
We view as a step to prepare for potential shareholder participation in the future and restrict individual investor participation in the future, Nomura said in a trading note.