HONG KONG, Oct 25 (Reuters) – Shares in China Evergrande Group (3333.HK) 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 $300 billion 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. read more
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% while China Evergrande New Energy Vehicle Group Ltd (0708.HK) as much as 17%, although both later trimmed their gains. The benchmark Heng Seng Index (.HSI) climbed 0.1%.
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 the 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. Last month, the unit warned it was still seeking new investors and asset sales, and that without either it might struggle to pay salaries and cover other expenses.
Hui expects property sales will slow to about 200 billion yuan ($31.31 billion) per year within the 10-year period, compared to more than 700 billion yuan last year, China’s Securities Times reported on Friday.
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News late last week that Evergande had averted a default by securing $83.5 million 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 $47.5 million by Friday and has nearly $338 million 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…
Read More: Evergrande, EV unit shares jump after chairman signals business shift