China Evergrande Group is seeking as much as HK$8.43 billion ($1.1 billion) in a private share sale, accelerating efforts to shore up its balance sheet after a liquidity scare that rattled investors and local market regulators last month.
The world’s most indebted developer is offering 490 million shares in a top-up placement at HK$16.50 to HK$17.20 each (US$2.13 to US$2.22), a discount of 11.1 per cent to 14.7 per cent to Monday’s closing price at HK$19.34. The local market was shut on Tuesday due to a typhoon warning.
There is an option to increase the placement by an additional 120 million shares, according to the terms. The transaction is expected to take place on Wednesday and settled on Friday. The shares are subjected to a 90-day lock up.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
Controlled by billionaire chairman Hui Ka-yan, the junk-rated developer bought itself some breathing space in late September after striking a deal with investors to avert US$13 billion of repayments by March under a Shenzhen land deal. It is still engaged in a dash for cash by cutting prices on new homes to lure buyers, pursuing listings and spin-offs, and tapping markets for fresh capital to repay maturing debt.
“The placement should tide them through,” said Kerry Goh, chief investment officer at Kamet Capital Partners. “But I don’t think US$1 billion is sufficient for them to be able to pare down their large debt. This is just sending a signal to buy some time from creditors to work out the capital structure through the sale of assets or fundraising.”
A top-up placement will allow Evergrande to raise money quickly from investors without diluting Hui’s controlling stake in the company. News of the offering provided a lift to Evergrande’s bonds, lifting its dollar-denominated notes due 2021. One of the company’s units is seeking to raise as much as 2.1 billion yuan (US$310 million) this week via a new five-year bond sale.
Evergrande had 835.5 billion yuan (US$1.26 billion) of borrowings on June 30, up from about 800 billion yuan at the end of 2019, according to its latest interim report released to the Hong Kong stock exchange on September 28. Some 47.4 per cent of them will mature within 12 months.
The developer’s stock has declined 31 per cent since hitting a 15-month high in early July amid liquidity challenges. This year, Hui has altered its focus to prioritise growth in property sales with deleveraging agenda away from a high-growth high-debt approach, according to its website.
Those concerns surged to the fore last month after a letter warned that payments coming due in January could cause a liquidity crunch and potentially lead to cross defaults in the broader financial sector. The company dismissed the rumours and said the document with the company’s chop was fabricated.
Hong Kong-listed companies have been tapping investors for cash via follow-on share offerings. There were 179 such offerings from January to September, raising a total of US$29.4 billion, according to Refinitiv data. That is tripled the US$9.75 billion from the same period last year.
The proposed discount on Evergrande’s stock placement is wider than that offered by rival developers in other share placements this year. Sunac China sold US$1 billion of shares at a discount of 8.25 per cent, while China Vanke offered 4.8 per cent.
Bank of America, Credit Suisse, Huatai International and UBS Group are joint bookrunners for Evergrande’s placement.
More from South China Morning Post:
- Hedge funds placed bets against China Evergrande, counting on its shares to plunge, just in time to get burned
- China Evergrande faces possible snag in land deal as Shenzhen partner calls for care, more discussion on reorganisation plan
- China Evergrande’s 30 per cent discounts get world’s most indebted developer within sight of sales goal, allay cash crunch fears
- China’s ‘three red lines’ strike delicate balance between curbing real estate debt and local government finances
- China Evergrande pre-empts US$19 billion cash crunch as investors drop repayment option in Shenzhen reorganisation plan
This article China Evergrande seeks US$1.1 billion from stock placement amid rush to trim US$123 billion of debt load first appeared on South China Morning Post