China-based Evergrande Group suffered losses on Thursday at the Hong Kong exchange after it announced that a deal to sell $2.6bn stake in its property services unit fell through.
Shares of the property developer plummeted up to 14% following its resumption of trading after a two-week suspension.
Evergrande managed to recover some of its earlier losses, however, it was still down by 9.8% in later trade. Its property services unit fell by 5%, while its electric vehicle arm dropped as much as 10.3%. Hopson soared 5.6 percent.
Shenzhen-based property giant was once China’s top-selling developer but it is now battling with its liabilities worth more than $300bn. Investors have become increasingly worried. China’s government officials have said that the firm’s problems will be contained and will not lead to contagion.
Earlier on Wednesday, Evergrande said the company had scrapped a deal to sell a 50.1% stake in Evergrande Property Services Group to Hopson Development Holdings, a Hong Kong firm, due to the smaller rival’s failure in meeting the “prerequisite to make a general offer”.
Both the companies blame each other for the setback. Hopson said it did not accept there was “any substance whatsoever” to Evergrande’s termination of the sales agreement, and that it was exploring options to protect its interests.
This is the second deal that has fallen apart as the developer scrambles to raise funds. According to reports the $1.7bn sale of its Hong Kong headquarters had failed owing to buyer worries over Evergrande’s dire financial situation.
The setback has come at a time when the expiry of a 30-day grace period for Evergrande to pay $83.5m as part of its payments for an offshore bond looms. If the company fails to make the payment it will be considered in default.
Evergrande issued a filing on Wednesday saying that the grace periods for the payment of the interest on its US dollar-denominated bonds that had been due in September and October have not yet expired. It did not elaborate further.
A lawyer representing some of the creditors said, “The scrapped transaction has made it even more unlikely for it [Evergrande] to pull a rabbit out of a hat at the last minute. Given where things are with the missed payments and the grace period running out soon, people are bracing for a hard default. We’ll see how the company addresses this in its negotiations with creditors.”
Evergrande was originally listed in Hong Kong in 2009. It had raised 70.5 billion Hong Kong dollars ($9bn) in its initial public offering in a debut that made it China’s largest private property company and its founder, Xu Jiayin, the mainland’s richest man at the time.
In an expansion spree, Xu had acquired the then-embattled Guangzhou football team during 2010 and renamed it Guangzhou Evergrande. He had spent a fortune on top-class players and coaches.
The group had further diversified into other sectors including bottled water and electric vehicles.
Following a government crackdown on developers in August 2020, Evergrande had started to falter as it was pushed into selling properties at increasingly steep discounts.
