AFP – Shares in China’s biggest property developer surged almost 20 percent last week after the company reached an agreement with key investors that helps it avoid a cash crunch that some fear could hit the global financial system.
The future of China Evergrande Group has been thrown into doubt as it struggles to cover repayments on debts totalling more than $120 billion, with a letter last week circulating on Chinese social media appearing to show it asking the government in Guangdong for help.
The company, the world’s most indebted developer, refuted the claims as well last week, saying they were “fabricated” and “pure defamation”, adding it would take legal action.
Its shares plunged by a fifth in Hong Kong, while its Shanghai-listed stock was suspended and ratings group S&P downgraded its credit outlook to “negative”.
Analysts have warned that a default on huge debts owed by the company, founded by billionaire Xu Jiayin and a key player in China’s building boom, could send bad loans cascading through the country’s opaque banking system.
But the firm moved to stabilise its affairs last week after key investors agreed not to sell 86.3 billion yuan ($12.6 billion) in Hengda Real Estate, an Evergrande unit.
The company had raised billions of dollars by selling stakes in the unit and pledged to repay the cash if it did not float by January.
There had been fears they would push to get their money but the developer said in a statement the investors “will continue to hold their interests in Hengda Real Estate, with their percentage of equity interests remaining unchanged”.
Last weeks deal, which also starts the process of shoring up a further 28 billion yuan of shareholdings, buys some time for the developer to sort out its debt repayments.
Evergrande shares jumped 19.4 percent in Hong Kong last week too. That followed a more than 20 percent jump on Monday after the firm sought to reassure investors about its future.
Formerly called the Hengda Group, Evergrande was founded in the southern Chinese city of Guangzhou in 1996. In October 2009 the company raised $722 million in an initial public offering on the Hong Kong Stock Exchange.
The group bought football club Guangzhou Evergrande F.C. in 2010 and invested heavily, and under Marcello Lippi they won the 2013 AFC Champions League.
In recent years Chinese property developers like Evergrande and Dalian Wanda have made forays into “alternative, income-generating businesses away from the property market”. For example, Evergrande has expanded into solar panels, pig farming, agribusiness, and baby formula.