Evergrande and EV unit shares surge after president reports business change

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A traffic light is seen near the headquarters of the China Evergrande group in Shenzhen, Guangdong province, China on September 26, 2021. REUTERS / Aly Song / File Photo

HONG KONG, Oct. 25 (Reuters) – Shares of China Evergrande Group (3333.HK) and its EV unit rose on Monday as the ailing property developer decided to prioritize growing its nascent vehicle business electrical versus its struggling core real estate operations.

Evergrande, reeling from more than $ 300 billion in liabilities, averted a costly default last week with a last-minute bond coupon payment, saving him more time to ward off a tightening debt looming with its next major payment due Friday.

An announcement by its chairman, Hui Ka Yan, reported by state media on Friday that it would make its new electric vehicle project its main business, instead of real estate, within 10 years, applauded the investors Monday.

Evergrande rose 6% while China Evergrande New Energy Vehicle Group Ltd (0708.HK) reached 17%, although both subsequently reduced their earnings. The benchmark Heng Seng (.HSI) rose 0.1%.

Raymond Cheng, head of research in China at CGS-CIMB Securities, said the change in activity made sense given Beijing’s growing support for electric vehicles and its further tightening of the sparkling real estate sector.

“This is the best result, if it only focuses on existing developments and maintains the operation,” Cheng said.

While the move would help Evergrande deleverage by gradually reducing its huge land reserve, Cheng said it was not clear how this would affect the company’s asset divestiture plan.

Evergrande new vehicle company, founded in 2019, has yet to reveal a production model or sell a single vehicle. Last month, the unit warned that it was still looking for new investors and asset sales, and without either, it might struggle to pay salaries and cover others. expenses.

Hui expects real estate sales to slow to about 200 billion yuan ($ 31.31 billion) per year over the 10-year period, from over 700 billion yuan last year, reported Friday the Chinese Securities Times.

NEXT HEDGES

News late last week that Evergande had avoided a default by securing $ 83.5 million for the last-minute interest payment on a bond boosted confidence the company might be able to avoid. a disorderly collapse that would have significant ramifications for global financial markets.

Sources told Reuters on Monday that some bondholders received coupon payments owed to them last week, suggesting the debt issues were being resolved.

Evergrande is then set to find $ 47.5 million by Friday and has nearly $ 338 million in other offshore coupon payments coming in November and December.

Wider concerns about China’s real estate sector, which accounts for a quarter of gross domestic product, still weigh heavily on investors and policymakers in the world’s second-largest economy.

Real estate companies, many of which have dollar-denominated debts, will meet with the Chinese state planner in Beijing on Tuesday, Cailianshe news outlet said.

Evergrande said separately on Sunday that it had resumed work on more than 10 projects in six cities, including Shenzhen. Many of its projects across the country had been halted due to payments owed to suppliers and contractors.

Also boosting general confidence, state media Xinhua said in an article Monday that the ripple effect of Chinese real estate companies’ default risks on the financial sector would be controllable.

The report follows comments from senior officials, including Vice Premier Liu He and central bank governor Yi Gang last week, who also said that real estate companies were facing default issues due to poor management and an inability to adapt to changes in the market.

Reporting by Clare Jim and Donny Kwok; edited by Richard Pullin and Sam Holmes

Our standards: Thomson Reuters Trust Principles.


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