Key Evergrande shareholder sells major chunk, hints at exit

The second largest shareholder of Evergrande Group, Chinese Estates Holdings, has sold a portion of the stake it holds on the indebted property developer and signalled the sale of the whole position in a filing send to the Hong Kong stock exchange. 

Chinese Estates sold 108.9 million Evergrande shares in the open market between August 30 and September 21  for HK$246.5 million. South China Morning Post reports that the operation resulted in a loss of HK$1.38 billion (US$177.2 million). Evergrande’s average share price during that period was HK$3.42, according to data from Bloomberg.

As of August 31, Chinese Estates held 751.09 million Evergrande shares, or 5.66 per cent of the property giant. The stock filing states that Chinese Estates may sell the remaining stake “depending on the prevailing market conditions”.

Chinese Estates was founded by Hong Kong property tycoon Joseph Lau Luen-hung, who transferred to his wife Chan Hoi-wan, the effective majority shareholder control of Hong Kong-listed Chinese Estates Holdings.

Joseph Lau was sentenced in absentia in Macau to five years and three months in prison in 2014, upon being found guilty of bribing former Transport minister Ao Man Long for some HK$20 million (US$2.55 million), becoming a convicted felon and fugitive.

Menahwile, concerns about a collapse of Evergrande receded for now among investors.

This comes after news that Evergrande had agreed a plan to repay interest to its domestic bondholders, soothing worries of a default that have raised talk of a hammer blow to the Chinese economy.

Attention is now on what it plans to do about repayments to offshore bondholders, which are due  today (Thursday).

Observers pointed out that even if it fails to meet its obligations, the firm still has 30 days to come up with the cash. However, they will be keeping an eye on how it deals with those dollar-denominated notes.

“International investors will watch closely for new developments and for any state reaction, and assess how contagious it can be for the rest of the economy,” Bernard Shaw, an Asia bond syndicate banker at Daiwa Capital Markets Singapore, said.

Hong Kong rose more than one percent, with Evergrande surging about 30 percent briefly before easing back slightly — though its shares are still down more than 80 percent this year. There were also gains for other property developers as well as banks that have exposure to the firm.

Justin Tang, of United First Partners, said the Wednesday announcement “displayed that maintaining bond solvency was still on the agenda for Evergrande and also raised hopes for investors that creditors are to an extent open to resolution”.

“The read-through is that an orderly restructuring/negotiation is still on the cards for other onshore and offshore creditors and could buy the time Evergrande so desperately needs.”