Shares in indebted China Evergrande gyrate

Business | 22 Jun 2021 10:36 am

China Evergrande Group shares posted wild swings on Monday, rallying by 8 percent after touching a four-year low in Hong Kong, squeezing short sellers, Bloomberg reports.

Shares of Chinese billionaire Hui Ka Yan’s flagship property developer jumped to HK$10.7, rebounding from the lowest since May 2017.

Evergrande is planning to sell its stake in a Hangzhou-based property unit, according to an exchange filing on Monday.

The stake sale could help alleviate funding concerns at Evergrande, which has seen short interest surge threefold in three weeks.

The developer turned to its favored tactic of repurchasing shares to force bearish speculators out of their positions. It spent about HK$529 million (US$68 million) on buybacks since June 7, according to Bloomberg calculations.

Some investors are betting on a short-term rebound after the shares lost more than 40 percent from their January high, Castor Pang, head of research at Core Pacific Yamaichi, said by phone.

Evergrande’s rebound could have been underpinned by its plans to sell 29.9 percent of its stake in China Calxon Group Co.

The shares were valued at 2.5 billion yuan at its close, according to data compiled by Bloomberg.

Evergrande’s wholly-owned unit Kailong Real Estate will hold 27.85 percent of the Hangzhou developer upon finalizing the deal, and will give up its voting rights in the remaining shares.

The Calxon stake buyer, Shenzhen Huajian Holdings, was also a strategic investor of Evergrande’s onshore division known as Hengda Real Estate.

The unit had planned to go public in China and later triggered a liquidity scare when it failed to do so. Shenzhen Huajian is controlled by Chinese businessman Wang Zhongming.

Huajian put 5 billion yuan into Hengda in December 2016 as a first-round investor.

Another firm backed by Wang invested 3.5 billion yuan in May 2017 as a second-round investor for the failed listing.

Wang’s Shenzhen Greenwoods Investment Group operates businesses spanning construction and agriculture to hotel and finance, according to a filing.

Greenwoods’ 80 billion yuan in total assets include the mineral water, grain and oil businesses that were sold by Evergrande, its website shows.

Greenwoods also invested 5 billion yuan in Evergrande’s EV maker.

Evergrande’s affiliates rallied as well. Real estate management unit Evergrande Property Services Group gained by 7.7 percent, the most in a month.

Internet unit HengTen Networks Group gained by 10 percent, the most in five weeks.

Short interest in Evergrande reached 22.8 percent of the company’s free float as of Thursday, the highest level since September 2018, data compiled by IHS Markit and Bloomberg show.

There are so few Evergrande shares readily available that traders would need about 22 days to cover their bearish bets -- or buy back borrowed stock to close out an open short position. That increases the risk of a short squeeze, when hedge funds are forced to liquidate their positions at increasingly higher prices.

Worries over the future of the world’s most indebted developer have grown in recent weeks after affiliates missed payments and Caixin Media’s WeNews reported that regulators are looking into Evergrande’s ties to Shengjing Bank Co. in northern China.

Bondholders have rushed for the exit too, with a key dollar note trading near its lowest level since April 2020.

The selloff worsened after WeNews reported last week that a local government discussed with Evergrande about paring its stake in Shengjing Bank, and the banking watchdog said it would curb a key source of financing for developers to control risk.

The plunge in the shares has hurt the wealth of founder Hui.

At US$17 billion, his net worth has tumbled by more than a third since September.

Evergrande’s long-dated dollar bonds were almost unchanged on Monday even as some short-dated notes have staged a comeback. Its 8.75 percent note due 2025 is indicated at 72.3 US cents on the dollar early Monday, according to Bloomberg-compiled prices.



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