210921 Evergrande
Evergrande's stock has been through a bruising 80% drop. Only a stake sale can prop up the debt defaulting property giant now. Image Credit: AFP

Hong Kong: China Evergrande Group and its property services arm were halted in Hong Kong stock trading amid a report that the developer agreed to sell a controlling stake in the unit to raise much-needed cash. No reason was given for the suspensions.

Hopson Development Holdings Ltd. plans to acquire a 51 per cent stake in Evergrande Property Services Group Ltd.. Hopson Development shares were also halted, and its bonds plunged on the news.

Evergrande shares have tumbled 80 per cent this year, and its bonds have sunk to levels that suggest investors are bracing for a default. With more than $300 billion in liabilities, the developer has been trying to sell assets in a bid to raise cash. The saga has roiled financial markets in recent weeks on concern that it may spread to hurt the economy and financial system.

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The trading suspension may be related to a major asset disposal or capital restructuring, said Patrick Wong, a Bloomberg Intelligence analyst. Weak property sales "may accelerate its asset disposal," he said.

Hopson shares were suspended pending an announcement on a "major transaction" involving the acquisition of shares of a listed company, it said in a filing. Evergrande said in September that it had been "actively exploring" sales of parts of the unit, along with its electric vehicle arm, though no material progress had been made.

Evergrande's 8.25 per cent dollar bond due March 2022 rose about 3 cents on the dollar to 28 cents, according to credit traders in Hong Kong. Hopson's dollar bond due 2023 fell 4.5 cents to 90.5 cents, set for its biggest drop on record. (Mainland China markets are closed for a national holiday.)

Low profile

Like Evergrande, Hopson is based in the southern Chinese province of Guangdong. Listed on the Hong Kong Stock Exchange in 1998, the company is majority-owned by the billionaire Chu family. Co-founder Chu Mang Yee is described as an "invisible magnate" by Chinese media for his low-profile personality. Property management accounted for just 7 per cent of Hopson's revenue as of June.

While Evergrande's onshore bonds suffered regular halts last month, trading in the company's Hong Kong shares had until now been continuous throughout its latest debt woes. Monday's filing didn't specify whether Evergrande requested the suspension, though it's unlikely the stock exchange would mandate a halt without saying it had done so. Under Hong Kong listing rules, an issuer must demonstrate "exceptional circumstances" when requesting a trading halt and has to publish a public update as soon as possible.

Evergrande last requested a stock trading suspension in October 2016, according to data compiled by Bloomberg. Shares of its property unit were halted in January, when it announced it had purchased a rival firm.

Hitting the public eye

Evergrande's property services business went public in December, raising $1.84 billion in the sale. At the time, the offering valued the unit at about HK$95.1 billion, making it the second-largest listed property-management company in Hong Kong after Country Garden Services Holdings Co..

The stock has tumbled 43 per cent this year, dragged down by Evergrande's debt problems. Shares of the developer's other Hong Kong-listed unit, China Evergrande New Energy Vehicle Group Ltd., haven't been suspended and were up 8.3 per cent Monday morning, after dropping earlier.

Chinese authorities have been trying to limit any fallout from the Evergrande debacle. Last week, officials met with banks to ease credit for homebuyers and support the property sector, and the government bought out Evergrande's stake in a struggling lender.

Homebuyers are losing confidence in the embattled developer, which has pledged to deliver projects that have been left unfinished. Evergrande's contracted sales probably plunged 86 per cent in September from a month earlier, according to China Real Estate Information Corp. figures.

Evergrande has fallen behind on payments to banks, suppliers and holders of onshore investment products, and hasn't given any indication that it paid two recent dollar bond coupons. Now it faces a fresh debt test, with the maturity of a bond issued by a related entity. People familiar with the matter have said that a dollar note due October 3 issued at an initial amount of $260 million by Jumbo Fortune Enterprises is guaranteed by Evergrande.