China Evergrande Group's electric-car unit scrapped plans for a share listing amid what it said is a "serious shortage of funds", adding to liquidity concerns for the business empire of the world's most indebted property developer.
Financial markets will continue to scrutinise developments in Evergrande's debt crisis this week, especially whether Beijing will intervene to prevent a disorderly collapse of the firm. Tens of thousands of Chinese households face risks after Evergrande missed payments on investment funds sold through shadow banks, which have funnelled billions into its construction projects.
Shares of the car unit, China Evergrande New Energy Vehicle Group Ltd, pared losses in volatile trading after plunging as much as 26 per cent. Evergrande's stock rose as much as 6.4 per cent, while its 8.25 per cent dollar bond due 2022 was indicated lower, according to Bloomberg-compiled prices.
Evergrande may have another asset to sell in its scramble to raise cash: its fast-growing life insurance business.
Potential buyers
The developer's 50 per cent stake in Evergrande Life Assurance Co may fetch $600 million (€513 million) at 0.5 times book value, according to Bloomberg Intelligence analyst Steven Lam. The insurer has boosted its market share more than nine-fold since the year after Evergrande's 2015 acquisition and been profitable in each of the past four years.
If that sounds like a bargain to potential buyers, there are some catches. The fast expansion has come at the expense of a low solvency ratio that stood at 110 per cent at the end of June, compared with the 239 per cent average of six large peers, Lam wrote in a note Monday. That means whoever takes over Evergrande’s stake may have to come up with another $2.2 billion (€1.8 billion) to lift the ratio beyond 200 per cent.
The impact from an Evergrande credit event on rated Chinese construction issuers will be manageable because they have limited exposure to the developer, Fitch Ratings said in statement.
Soccer stadium
Meanwhile, an Evergrande Group project in the southern city of Guangzhou to build one of the world's largest soccer stadiums is proceeding "as normal", the company told Reuters on Monday, despite the real estate giant's cash woes.
Evergrande owes $305 billion (€261 billion) in debt and has run short of cash, rattling global markets. It missed a payment deadline on a dollar bond last week. Construction on the Guangzhou FC Soccer stadium, which was set to cost about 12 billion yuan (€1.59 billion), began in April last year and had been due to finish by 2022.
“Construction work on the soccer stadium is still proceeding as normal and in an orderly manner,” China Evergrande said in response to a query from Reuters. The stadium would have a capacity of more than 100,000, which would make it the world’s largest purpose-built soccer venue by capacity.
“The world’s eyes are on it,” the owner of a small store nearby surnamed Zhao said on Sunday. “How could the biggest soccer stadium in the world not be built? It won’t become a waste construction site. The government wouldn’t let this happen.”
– Bloomberg and Reuters
