Shares in debt-laden Evergrande Group’s (恆大集團) electric vehicle (EV) unit slumped by more than 10 percent yesterday after the firm scrapped a proposed Shanghai listing, and with the property developer mired in a liquidity crisis.
Evergrande is struggling with more than US$300 billion in debt from a years-long acquisition binge, including an EV venture once billed as a rival to Elon Musk’s Tesla Inc.
There are fears that any defaults on tens of millions of dollars of interest payments could spark a chaotic implosion of the firm, China’s second-largest developer, with major repercussions for the domestic economy and the rest of the world.
Photo: Bloomberg
Shares in Evergrande New Energy Vehicle Group Ltd (NEV, 恆大新能源汽車) fell to HK$2.02 in Hong Kong yesterday, after it scrapped the planned Shanghai listing via a Sunday stock exchange filing.
In a separate exchange filing on Friday, Evergrande NEV said its parent company’s cash crisis would have a “material adverse impact” on production.
The firm warned of a “serious shortage of funds” that forced it to suspend “paying some of its operating expenses and some suppliers.”
It said “there is no guarantee that the Group will be able to meet its financial obligations under the relevant contracts” as it looks for strategic investors.
The auto unit’s share price has lost 80 percent of its value since February this year.
Evergrande’s problems have spooked global markets and raised fears of a tightening of Chinese consumer confidence, which could quickly seep into everything from home buying to demand for steel, as well as an appetite for luxury goods.
As the debt crisis threatened to overwhelm the company last week, Evergrande agreed a last-minute deal with domestic bondholders that would avoid default on one bond payment.
However, it remained silent on a separate US$83.5 million bond interest payment due one day later.
A US$47.5 million interest payment on a US dollar bond is due tomorrow — another key milestone likely to be closely watched by markets.
The group — which claims to employ 200,000 people and indirectly generate 3.8 million jobs in China — has said it is trying to avoid a bankruptcy that could reverberate around the world.
The Financial Times reported yesterday that at least two local governments in China had taken control of sales revenue from Evergrande properties, as fears also rise of the social ramifications of large numbers of Chinese home buyers being left out of pocket.
Evergrande could have another asset to sell in its scramble to raise cash: its fast-growing life insurance business, Bloomberg Intelligence analyst Steven Lam said.
Lam said that the developer’s 50 percent stake in Evergrande Life Assurance Co (恆大人壽保險) might fetch US$600 million at 0.5 times book value.
The insurer has boosted its market share more than nine-fold since the year after Evergrande’s 2015 acquisition and has 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 percent at the end of June, compared with the 239 percent average of six large peers, Lam wrote in a note yesterday.
That means whoever takes over Evergrande’s stake might have to provide another US$2.2 billion to lift the ratio beyond 200 percent.
While its premium income in China last year might be ahead of AIA Group Ltd’s, Evergrande Life tilts toward less-profitable products, Lam said.
The stake could have more appeal to small or medium-sized rivals, instead of the well-established Chinese insurers that the nation’s regulators might want have to absorb it, he wrote.
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