Bloomberg
A rally in bonds of China’s most-indebted developer has some analysts warning that steps to cut borrowings have yet to bring leverage down to healthy levels.
China Evergrande Group said that it has agreed to sell its stake in China Vanke Co. for 29.2 billion yuan ($4.3 billion), freeing up cash as it cuts its debt load. That came after Evergrande raised 39.5 billion yuan selling a stake in a property unit on May 31. The builder also said last week that it plans to sell new bonds and exchange them with four sets of existing notes totaling $3.2 billion, and that it is accelerating a plan to cut its debt load by redeeming all perpetual securities by June 30.
While the property giant controlled by Chinese billionaire Hui Ka Yan has seen its bonds and stock rally in recent weeks, it still faces questions about its debt load. Evergrande’s leverage will likely improve, but will remain high, said Franco Leung, an analyst at Moody’s Investors Service. Its leverage is one of the highest among sizable Chinese developers, a concern amid the government’s intensified crackdown on developer financing, according to Alan Jin, a property analyst at Mizuho Securities Asia Ltd. and Danielle Wang, China property analyst at DBS Vickers Hong Kong Ltd.
“It’s a significant decline of leverage, but it doesn’t make them healthy,†Jin said, adding the positive effect of perpetual bond redemption may be overstated by the market. “Their debt burden is still very high.†Evergrande declined to comment. Evergrande’s 8.25 percent notes due in 2022 have risen to about 105.8 cents on the dollar from par, or 100 cents, when they were issued in March, according to data compiled by Bloomberg.