Evergrande gains on hopes of sale to Vanke

Shares of China Evergrande (3333) extend gains for the third day as reports surfaced that it is considering selling its property management businesses to a consortium lead by rival China Vanke (2202).

Evergrande closed 7.84 percent higher at HK$6.33 yesterday. Its shares have climbed more than 21 percent so far this week on expectations the world's most-indebted developer will ease its cash crunch with asset sales.

On Tuesday night, Evergande announced that it is in talks with several independent third-party investors to sell a part of the interests in the listed subsidiaries China Evergrande New Energy Vehicle (0708) and Evergrande Property Services (6666).

Shares of the EV segment rose 4.7 percent while Evergrande Property Services climbed 8.96 percent yesterday.

The company is also seeking buyers for the bulk of its urban renewal projects in Shenzhen, Reuters reported earlier.

Vanke, one of the biggest developers in China, is expected to be the buyer of Evergrande Property Services, local media reported yesterday. Vanke acquired a 19.9 percent stake in embattled developer Tahoe Group for 2.4 billion yuan (HK$2.88 billion) last year. It is also considering buying projects from Sichuan Languang Development, a mainland developer with overdue debts totaling 4.54 billion yuan.

Top Chinese politicians defined Evergrande's financial problems as "liquidity stress" and not an insolvency, REDD reported last week.

Evergrande plans to sell around 120 billion yuan in assets and initiated talks with potential buyers such as China Jinmao (0817) in early June, the report added.

Assuming Evergrande maintains control of the auto and property services units, the firm may raise about HK$25 billion from selling minority stakes, said Raymond Cheng, a property analyst at CGS-CIMB Securities.

"It's positive for Evergrande," Cheng said. "We believe that Evergrande's bankruptcy risk may not be as high as bond prices suggested."

If realized, the sales may help Evergrande reduce its net debt-to-equity ratio by about 10 percent to 90 percent, Cheng said, adding he expects the ratio fell to 99 percent by the end of the first half. Evergrande said in late June that the ratio dipped below 100 percent, meeting a key debt metric of China's "three red lines" requirement for property developers.

Mainland developers also rose with China Overseas (0688) jumping 8.89 percent, the best performer among blue chips.