Heavily indebted Chinese property giant Evergrande is selling off a chunk of its business to raise crucial funds as further bond interest payments this month loom.
According to Chinese state media, Evergrande will raise $5.1bn by selling off a majority stake in its property service unit to Hopson, another Chinese real estate developer.
Before the deal was announced, trading in Evergrande’s shares on the Hong Kong stock exchange was suspended.
Evergrande has run up debts of around $305bn, fuelled by the developer financing rapid expansion across China through borrowing heavily. It says it has built around 12m homes for people in the country.
Fears over the fallout of its collapse have sent shockwaves through global markets.
Chinese authorities are expected to clamp down further on the country’s heavily indebted real estate sector if Evergrande fails, which would likely hit global countries that rely on commodity exports to generate income. China is the world’s largest consumer of commodities.
Evergrande has more than $162m of bond coupon repayments due this month. It recently missed a $83.5m payment to overseas investors. Bloomberg has reported it has another $260m repayment due today.
“If no sign of payment occurs, the negative noise around the company and China’s property market will increase once again,” Jeffrey Halley, senior market analyst for Asia Pacific at OANDA, said.
“There still remains very little visibility from the Chinese Government over Evergrande’s fate, although a slow and steady dismantling of the company appears to be the favoured course right now.”
The Chinese government has urged state-owned property companies to buy parts of Evergrande’s business.