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Property

China Evergrande reaches debt deal to relieve deadline pressure

Country's largest developer had pledged to secure domestic listing by January

China Evergrande Center in Hong Kong: Evergrande is China's biggest and most indebted real estate group.   © Reuters

HONG KONG -- China Evergrande Group, the nation's largest and most indebted property developer, late on Tuesday said that it had reached a deal with investors that will eliminate a looming January debt repayment deadline.

Investors welcomed the news, pushing Evergrande's shares up 12.9% in early trade in Hong Kong on Wednesday to HK$18.62.

Under a 130 billion yuan ($20.39 billion) deal reached in 2017, Evergrande had issued convertible bonds with a pledge to either list its Hengda Real Estate unit on a mainland Chinese stock market or redeem the debt. It has not been able to move forward with the listing plan.

Evergrande said Tuesday that investors had agreed to roll over 86.3 billion yuan of the convertible debt and was close to finalizing arrangements with holders of a further 15.5 billion yuan of the bonds. It said negotiations were ongoing with holders of the remaining 28.2 billion yuan of the bonds.

The announcement will take some pressure off the company amid intense focus on the company's $120 billion in debt.

The company's bonds, which slumped last week after a widely circulated social media post of a letter allegedly from the company warning of a potential default, moved higher after Tuesday's announcement. Its onshore bonds were suspended last week amid heavy selling while its Hong Kong-listed shares slumped to their lowest level since May though the company said the letter was fabricated and defamatory.

Until Hengda's listing takes place, the funds raised in 2017 are treated as quasi-debt, creating an extra burden on Evergrande's balance sheet.

The pending listing is to be accomplished via a reverse merger, announced in 2016, with Shenzhen-listed Shenzhen Special Economic Zone Real Estate and Properties Group. The state-owned company said in a statement last week that it was "working hard" to advance the process but added in a recurring update on Monday that "the major asset reorganization planned by the company is still uncertain."

Evergrande last month said that as of June 30, its cash balance stood at 204.6 billion yuan giving it "abundant working capital."

Evergrande has set a target to halve its debt by 2022. So far it has fallen short of its target of retiring 150 billion yuan in borrowing a year. Total debt rose 4% from Dec. 31 to 835.5 billion yuan as of June 30, according to its latest earnings report.

Evergrande owns 63.5% of Hengda while the remainder is held by investors including state-owned enterprises such as Shandong High-speed Group and Shenzhen Investment, suppliers to Evergrande such as Suning Group as well as Grandland Holdings and domestic private equity funds.

"We expect the A-share IPO to be further delayed," Fitch Ratings said in a recent report.

Additional reporting by Grace Li in Hong Kong

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