- Evergrande is set to raise $5.1 billion by selling a 51% stake in its property service unit to Hopson, the Global Times reported.
- Trading in shares of both Evergrande and Hopson was temporarily suspended on Monday.
- "The proposed $5.1 billion deal would provide crucial cashflow at a time of need," one analyst said.
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Evergrande is set to sell a 51% stake in its property management unit to Hopson Development for $5.1 billion, Chinese state media reported Monday, after both companies requested trading halts.
Trading in shares of China Evergrande Group was suspended Monday pending an announcement about a "major transaction," the Hong Kong Stock Exchange said. Trading in Evergrande Property Services Group stock was also halted, and in its statement, the unit said the matter covers "a possible general offer for the shares of the company."
Evergrande's total liabilities stand at a crushing $305 billion, or roughly 2% of China's GDP. Its importance in China's economy has spooked investors about the potential contagion for global markets if it collapses.
The embattled property developer has already failed to make two offshore payments on time. It faces further deadlines on US dollar-denominated bond coupon payments worth more than $162 million in October.
Overnight suspension of Evergrande's shares raised fears of a debt default, but news that it is selling a half-stake in its portfolio has instead allayed concerns for now, said Joshua Mahony, senior market analyst at IG.
"The proposed $5.1 billion deal would provide crucial cashflow at a time of need, yet the questions remain over whether these fire-sales will be enough to stave off an eventual collapse that has been speculated as the biggest default in history," he said.
To avert a messy collapse, Beijing has been asking government-owned companies to purchase some of Evergrande's assets, according to Reuters. Just last week, the property developer struck a deal with a state-owned enterprise to sell a 20% stake in a commercial bank for $1.5 billion, signalling that authorities are helping it resolve its financial trouble. But those proceeds are equal to less than 1% of its total liabilities.
Evergrande has a $260 million offshore interest payment from Jumbo Fortune Enterprises maturing on October 3, Bloomberg reported, which only has a five-day "grace" period. As the maturity date is Sunday, the effective due date is Monday.
"If no sign of payment occurs, the negative noise around the company and China's property market will increase once again," Jeffrey Halley, a senior market analyst at OANDA, said in a note.
The parent company's shares were down 80% year-to-date, at 2.95 Hong Kong dollars. Stock in its property development unit were last trading at 5.12 Hong Kong dollars, down 53% so far this year.
Trading in Hopson was also temporarily suspended in Hong Kong on an impending announcement about a major acquisition. No name was specified. Shares in Hopson, which has a market value of 60.4 billion Hong Kong dollars ($7.8 billion), are up 40% so far this year. The company improved its profit in the first half this year, and its assets outweigh its liabilities.
Evergrande didn't immediately respond to Insider's request for comment.