Saturday, October 16, 2021

Evergrande shares rally after bond repayment plan is announced

Must read

Image copyright Getty Images Image caption A Reuters analysis shows that Evergrande did not file several forms of debt documentation in line with mainland law

Shares in Evergrande have jumped more than 7% as China’s securities regulator asks the company to avoid a near-term default.

It emerged on Wednesday that Evergrande had missed a repayment on a bond.

The company confirmed on Thursday that it had failed to pay a $470m (HK$3.88bn) bond due in October, and would make a full repayment to investors on 12 December.

The Chinese regulator also called on Evergrande to manage its assets “efficiently and effectively” and correct any “illegal business deals and wrong practices”.

It stopped short of ordering the company to cut up its credit cards.

“As we have said repeatedly, we are not a shadow banking company, and neither the company nor the Guangdong branch is actively engaging in such businesses,” the Hong Kong and Macau Stock Exchange said in a statement.

The regulator added it was “welcoming” Evergrande’s plan for the payment and encouraging shareholders to lend more money to the company, which owns a 69% stake in football club Guangzhou Evergrande.

China’s Shenzhen-listed stock surged 14% in morning trading.

This is the second bond Evergrande has had to postpone repayment on this year.

It failed to pay a bond of over $140m (£109m) on 30 September – its fifth failure to honour an interest payment this year.

Analysis – Gina Shen, BBC business reporter

Evergrande’s announcement comes as something of a relief to investors in Hong Kong and China.

The bond the company missed in October was first issued to plug a $7bn loan hole in 2017.

An earlier effort in 2017 to repay the amount with a $1.1bn loan paid off just $740m – leaving the company $852m short of its original target.

Bankers had initially accused Evergrande of shirking its obligations and a group of investors filed a lawsuit against the company earlier this year.

Evergrande took advantage of a relaxed local regulation last year to avoid the scrutiny of capital market rules – allowing the group to issue unlimited new shares and use them as collateral for loans.

This resulted in the company becoming one of the biggest shareholders in Guangzhou Evergrande Football Club and China Evergrande Retail, a group of hypermarket stores across China and the mainland.

As a result, the group has taken on debt totalling $31bn.

Many of its executives are also directors of the group, and its business model relies heavily on leverage.

These issues have been discussed numerous times over the last two years and commentators had repeatedly warned about the risks this posed to Evergrande.

– This article was amended on 22 November to clarify that Evergrande failed to make an interest payment on a $455m bond due on October 30, and to correct the incorrect first reference to Evergrande as a borrower rather than a developer.

More articles

Latest article