Chinese Estates sells its holdings in Evergrande as potential collapse nears

By: Ruchi Gupta
Ruchi Gupta
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on Sep 23, 2021
  • Chinese government informs authorities to be ready for Evergrande’s collapse
  • Evergrande paid interest in local bonds, but dollar-denominated bonds could be a breakpoint
  • Chinese Estates sells equity holding in Evergrande

According to the Wall Street Journal, Chinese authorities have informed local authorities to prepare for the possible demise of beleaguered Chinese property Developer Evergrande (HKG: 03333).

Beijing getting ready for the potential collapse of Evergrande

The WSJ report indicated that local officials described the Chinese government’s signals as “getting ready for the possible storm,” and said they were ordered to intervene only at the last minute to avoid ripple effects from Evergrande’s collapse.

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Despite the worldwide consequences, the report suggests that the central government may still have a limited will to bail out the developer. Concerns over Evergrande’s ability to make interest payments have intensified in recent weeks and were behind the global market sell-offs witnessed on Monday.

On Wednesday, the company completed payment on a local bond, boosting Asian markets. However, it’s uncertain whether the corporation will pay the interest due on its foreign bonds on Thursday.

According to Bloomberg, Authorities have warned the company not to default on interest for the dollar-denominated bonds. The company grew significantly at the back of the debt-fueled construction boom in the country. The high corporate debts are a concern to China, leading to Beijing placing a restriction on lending, which along with the decline in demand, has hurt Evergrande.

Chinese Estates disposes off its equity holding Evergrande

On Thursday, shares of Chinese Estates (HKG: 00127) popped after announcing plans to dispose off its whole interest in debt-ridden real estate company China Evergrande Group. Shares of Chinese Estate popped as high as 15.14% on Thursday morning before giving up some of those gains, but the stock was still up 5.5%.

Chinese Estates announced the sale of over 100 million shares held in China Evergrande Group from August 30, 2021, through September 21, 2021. The company sold the stock at an average selling price of $0.29.

The investment holding company also revealed plans to obtain shareholder approval to sell its remaining holdings in China Evergrande Group, accounting for around 5.66% of the ailing real estate developer’s issued equity capital.

Days earlier, the company’s Chairman Lau Ming-Wai had told CNBC that China has “all the tool” to resolve the embattled developer’s matter. Lau said:

“I think the mainland government is very well versed in handling events or shocks or crises, whether it’s natural or man-made. I think they have all the tools in their tool box — whether it’s monetary or fiscal, to solve this.”

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