Evergrande’s key deal for the sale of a unit stake is halted

Evergrande’s deal to sell a 51% stake in its real estate services unit was stalled, according to two people with knowledge of the matter, in a blow to the troubled developer’s hopes of avoiding a default on its debt.

Evergrande, in debt more than $ 300 billion, was in talks to sell a stake in Evergrande Property Services to rival Hopson Development Holdings for about 20 billion Hong Kong dollars ($ 2.6 billion), sources had told Reuters.

The deal was to be the company’s biggest asset sale, but it was halted because it has yet to get approval from the Guangzhou provincial government, which oversees Evergrande’s restructuring, one of the sources said.

When contacted, a representative for Hopson asked Reuters to wait for an announcement. Evergrande and the Canton provincial government did not immediately respond to requests for comment.

Evergrande It is struggling to raise funds to pay its many lenders and suppliers amid concerns about a possible default on its overseas debt later this week after failing to meet a series of interest payments owed on its bonds.

However, Hengda Real Estate Group Co, Evergrande’s flagship unit, remitted funds to pay off a 121.8 million yuan (US $ 19 million) bond coupon in mainland China due Tuesday, according to four people with knowledge of the matter.

One of the sources argued that Evergrande, China’s second-largest real estate developer, must prioritize its limited funds in the domestic market, where much more is at stake for the country’s financial system.

While it was not immediately clear why the Canton provincial government did not approve the Evergrande Property Services transaction, some of the offshore creditors also opposed the deal, the person added.

Another source said the announcement of the deal will be delayed, pending regulatory approval from China. The deal has already obtained special approval from the Hong Kong Stock Exchange, he added.

The company’s liquidity crisis has affected global markets. High-yield bonds issued by Chinese property developers have been hit especially hard.

A bonus of Evergrande Due on March 23, 2022, it will be officially in default if the company does not comply after a 30-day grace period for the payment of a late coupon that expired on September 23.

However, the offshore bond market has responded positively to reassuring statements from China’s central bank and coupon payments made by two other major developers.

In recent days, the People’s Bank of China has said that the banking system side effects of Evergrande’s debt problems were controllable and that China’s economy is performing “good”.