Shares in China Evergrande Group and its EV unit rose on Monday as the embattled property developer moved to prioritise growth of its nascent electric vehicles business over its troubled core real estate operations.
Evergrande, reeling under more than $300bn in liabilities, averted a costly default last week with a last-minute bond coupon payment, buying it more time to head off a looming debt crunch with its next major payment deadline on Friday.
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An announcement by its chairman, Hui Ka Yan, reported by state media on Friday, that it would make its new electric vehicle venture its primary business, instead of property, within 10 years, cheered investors on Monday.
Evergrande rose as much as 6 percent while China Evergrande New Energy Vehicle Group Ltd as much as 17 percent, although both later trimmed their gains. The benchmark Hang Seng Index climbed 0.1 percent.
Raymond Cheng, CGS-CIMB Securities’ head of China research, said the business shift makes sense given Beijing’s growing support for EVs and its increased tightening of the frothy real estate sector.
“This is the best outcome, if it just focuses on existing developments and maintains the operation,” Cheng said.
While the move would help Evergrande deleverage by gradually scaling down its massive landbank, Cheng said it was unclear how it would affect the company’s asset disposal plan.
Evergrande’s new vehicle business, founded in 2019, has yet to reveal a production model or sell a single vehicle and is still trading about 94 percent off its peak in February. The company last month warned of a “serious shortage of funds” and said there was no guarantee it could meet financial obligations. The liquidity shortage meant it stopped paying some operating expenses and some of its suppliers turned away.
The company’s first electric car – “Hengchi” – will be delivered from its Tianjin factory at the start of next year, according to an October 11 statement on Evergrande’s website, which also referred to a “three-month war” to tackle the main challenges in EVs.
Evergrande chairman Hui expects property sales will slow to about 200 billion yuan ($31.31bn) per year within the 10-year period, compared with more than 700 billion yuan ($109.6bn) last year, China’s Securities Times reported on Friday.
News late last week that Evergande had averted a default by securing $83.5m for the last-minute payment of interest on a bond has lifted confidence the company may be able to avoid a messy collapse that would have significant ramifications for global financial markets.
On Monday, sources told Reuters some bondholders had received coupon payments they were owed last week, which suggested debt problems were being addressed.
Evergrande next needs to find $47.5m by Friday and has nearly $338m in other offshore coupon payments coming up in November and December.
Broader concerns about China’s real estate sector, which accounts for a quarter of gross domestic product, still loom large for investors and policymakers in the world’s second-largest economy.
Property firms, including many with dollar-denominated debts, will meet with China’s state planner in Beijing on Tuesday, media outlet Cailianshe said.
Evergrande separately said on Sunday it had resumed work on more than 10 projects in six cities including Shenzhen. Many of its projects across the country had been halted due to payments owed to suppliers and contractors.
Also lifting general confidence, state media outlet Xinhua in an article on Monday said the spillover effect of Chinese real estate companies’ debt default risks to the financial industry would be controllable.
The report follows comments from senior officials including Vice Premier Liu He and central bank governor Yi Gang last week, who also said property companies were facing debt default issues due to poor management and a failure to adjust to market changes.