China Evergrande's $3 Trillion Affiliate Stake Sale Fails... 'Default Watershed'

Deadline for Dollar Bond Interest Payment on 23rd
Industry Chain Reaction Feared if Default Occurs
Defaults Continue This Month Including 'Sinri'
Real Estate Market Enters Downturn Phase

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] The contract for the sale of a 3 trillion won stake in an affiliate, which was being pursued by Evergrande (恒大·Hengda), China’s second-largest real estate developer facing a default crisis due to debt exceeding 300 trillion won, has fallen through.

With just two days left before Evergrande’s dollar bond interest payment deadline scheduled for the 23rd, its plan to secure funds has collapsed, leading analysts to say that Evergrande’s default crisis has reached a critical turning point.

According to the Wall Street Journal (WSJ) on the 20th (local time), Evergrande announced that the contract to sell 50.1% of its real estate management affiliate, Evergrande Property Services, to real estate developer Hopson Development (合生創展·He Sheng Chuang Zhan) did not materialize.

If this contract had been finalized, Evergrande would have secured $2.6 billion (approximately 3 trillion won) in funds.

According to Evergrande’s disclosure on the day, the buyer failed to meet the conditions required to acquire the stake in Evergrande Property Services. Under the Hong Kong stock market regulations where Evergrande Property Services is listed, any company purchasing more than 30% of a listed company’s shares must make a takeover offer for that company.

Hopson Development posted a disclosure stating, "We were willing to purchase the stake, but some parties involved in the acquisition demanded unacceptable changes to the contract terms."

According to Hopson Development, some acquirers reportedly requested that Hopson pay Evergrande directly without depositing the acquisition funds first.

Currently, Evergrande is trying to overcome the default crisis by selling key assets such as subsidiaries and owned real estate to secure funds for interest payments.

Last month, Evergrande secured about 10 billion yuan (approximately 1.8 trillion won) through the sale of shares in Shengjing Bank held by its subsidiary. However, Evergrande stated that other affiliate sales have not shown meaningful progress beyond this transaction.

In particular, Evergrande’s grace period for dollar bond interest payments ends on the 23rd. If Evergrande fails to pay interest by then, an official default is expected to be declared.

Therefore, this week is seen as a critical turning point to gauge the direction of the Evergrande crisis.

The day before, Xinli, ranked 41st in China’s real estate industry, defaulted after failing to pay interest on its dollar bonds by the repayment deadline on the 18th. On the 5th, another real estate company, Fantasia, also declared an official default.

Amid this, if Evergrande also faces a default, concerns are rising that it could trigger a chain reaction throughout China’s real estate industry.

Evergrande stated, "The interest payment grace period is still ongoing," and added, "We will make every effort to extend the bond maturity through continuous consultations with bondholders."

This Evergrande-led crisis appears to have pushed China’s real estate market into a downturn phase.

Bloomberg reported on the day, "China’s September housing price index fell 0.08% month-on-month," noting that "China’s real estate market has fallen into a slump." This is the first decline in the housing price index since April 2015, six years ago.

Meanwhile, Evergrande shares, which resumed trading on the Hong Kong stock exchange that day, opened down sharply by 10.51% at 2.64 Hong Kong dollars.

Evergrande shares had been suspended from trading on the Hong Kong stock exchange since the 4th. The day before, Evergrande applied to the Hong Kong Stock Exchange to resume trading, and trading resumed from that day.

This content was produced with the assistance of AI translation services.