The China Evergrande group’s electric car unit scrapped its share listing plan amid what it called a “serious shortage of funds,” adding to liquidity problems for the real estate developer’s business empire. most indebted in the world.
Financial markets will continue to monitor developments in the Evergrande debt crisis this week, particularly if Beijing steps in to prevent a disorderly corporate collapse. Tens of thousands of Chinese households face risk after Evergrande fails to pay for investment funds sold through shadow banks, which have pumped billions into its construction projects.
Shares of the auto unit, China Evergrande New Energy Vehicle Group Ltd, cut losses in volatile trading after falling 26%. Evergrande’s stock rose 6.4%, while its 8.25% dollar bond due 2022 was shown lower, according to prices compiled by Bloomberg.
Evergrande may have another asset to sell in its fundraising race: its growing life insurance business.
The developer’s 50% stake in Evergrande Life Assurance Co could reach $ 600 million (€ 513 million) at 0.5 times book value, according to Bloomberg Intelligence analyst Steven Lam. The insurer has more than nine-folded its market share since the year following the acquisition of Evergrande in 2015 and has been profitable in each of the past four years.
If this sounds like a good deal for potential buyers, there are a few pitfalls. The rapid expansion came at the expense of a low solvency ratio that stood at 110% at the end of June, compared to 239% on average for six major peers, Lam wrote in a note on Monday. This means that whoever takes over Evergrande’s stake may have to shell out an additional $ 2.2 billion (€ 1.8 billion) to raise the ratio beyond 200%.
The impact of an Evergrande credit event on rated Chinese construction issuers will be manageable because they have limited exposure to the developer, Fitch Ratings said in a statement.
Meanwhile, a project by Evergrande Group in the southern city of Guangzhou to build one of the world’s largest soccer stadiums is going “as usual,” the company told Reuters on Monday, despite concerns over real estate giant’s treasury.
Evergrande is in debt of 305 billion dollars (261 billion euros) and has run out of cash, shaking global markets. He missed a payment deadline on a dollar bond last week. Construction of the Guangzhou FC football stadium, which was expected to cost around 12 billion yuan (1.59 billion euros), began in April last year and was due to be completed by 2022.
“The construction of the football stadium is still proceeding normally and in an orderly fashion,” China Evergrande said in response to a question from Reuters. The stadium would have a capacity of over 100,000 people, making it the largest football stadium in the world in terms of capacity.
“The eyes of the world are on her,” said the owner of a nearby small store named Zhao on Sunday. “How can we not build the largest football stadium in the world? It will not become a garbage construction site. The government would not let that happen.
– Bloomberg and Reuters