Shares of internet company HengTen Networks soared after debt-laden China Evergrande agreed to sell an 11 per cent stake in the company for HK$3.25 billion (US$418 million).
The world's most heavily indebted property developer will sell a 7 per cent stake in HengTen at HK$3.20 per share to a unit of Tencent Holdings for HK$2.07 billion, and a 4 per cent stake to an unidentified buyer for HK$1.18 billion, according to a filing to the stock exchange late on Sunday. The timing of the sale was not disclosed.
HengTen surged by as much as 55 per cent to HK$5.30 after trading resumed on Monday, following a suspension on Thursday, before settling back to close 48 per cent higher at HK$5.06. Shares of Evergrande rose 7.8 per cent to HK$5.67, while Tencent fell 0.8 per cent to HK$475.
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Prior to the transaction, Evergrande had a 37.55 per cent stake in the company, while Tencent owned 16.9 per cent, according to the filing. The deal will take Evergrande's stake down to 26.55 per cent and Tencent's up to 23.9 per cent.
Tencent's purchase of Evergrande's stake in the mobile video streaming and production company could "help protect its existing investment from further turmoil related to Evergrande's finances," said Matthew Kanterman, a technology analyst at Bloomberg Intelligence in a note on Monday. "The move may also align Tencent with authorities who are scrutinising both the tech and property sectors."
Shenzhen-based Evergrande has managed to trim its debt to about 570 billion yuan (US$87.7 billion) from a peak of 870 billion yuan in 2020. Its net debt-to-equity ratio has dropped below 100 per cent, in line with part of the central bank's "three red lines" deleveraging campaign.
Still, there are concerns it may have put local banks and small suppliers at the back of the queue of creditors.
Last Wednesday, Fitch downgraded Evergrande's credit rating from "B" to "CCC+", reflecting its "tight liquidity and high pressure to generate sales to reduce debt".
"Evergrande's liquidity is fragile and heavily reliant on renewing short-term banking facilities and trust loans, continued access to trade payables and robust contracted sales to generate cash flow," the rating agency said.
Evergrande's board also decided to forego the special payout announced on July 15, according to a surprise filing last Tuesday to the Hong Kong stock exchange. It cited "the current market environment, the rights of the shareholders and creditors, and the long-term development of the various businesses under the group", without divulging the amount of the dividend.
Evergrande's shares have plunged by nearly 75 per cent in Hong Kong over the past 12 months.
More from South China Morning Post:
- As Evergrande trims offshore debt and rebuilds investor confidence, SMEs and banks are overlooked in payment queue
- Evergrande reneges on special dividend two weeks after pledging it, in a surprise U-turn that sends shares, bonds crashing
- Evergrande resolves debt dispute with Guangfa Bank after Hong Kong lenders withdrew mortgage loans to its apartment buyers
- China Evergrande unit slides by record in US$1.9 billion sell-off as seller offloads stock after lock-up period expires