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Property

Evergrande seeks investors for $1.1bn share sale to repay debt

China's biggest developer still faces 2021 deadlines on half of its borrowings

China Evergrande's borrowings are widely considered large enough to send ripples throughout China's $40 trillion financial system.   © Reuters

HONG KONG -- China Evergrande Group, the nation's largest developer, is raising up to 8.43 billion Hong Kong dollars ($1.09 billion) in a share placement to pay down debt.

The Chinese company, Asia's largest private-sector debtor, has $125 billion in outstanding debt, with nearly half due for repayment by next June. Concerns about the company's slow progress in cutting its debt load and worries about looming deadlines have buffeted its Hong Kong-listed shares in recent months.

The company's bankers are now signing up buyers for 490 million shares to be priced between HK$16.50 to HK$17.20, a discount of as much as 14.7% to its closing price of HK$19.34 on Monday, according to terms of the transaction seen by Nikkei Asia. Hong Kong's stock market was closed on Tuesday because of a typhoon that shut down much of the city.

The company intends to use the proceeds to refinance existing debt, according to the term sheet.

The sale could be increased to 610 million shares based on demand, according to the term sheet. That could take the proceeds up to $1.35 billion. The offering is expected to close on Wednesday.

Rival China Vanke raised HK$7.89 billion in June at a 4.8% discount to its shares' trading price then.

After reaching a 15-month high in July, Evergrande shares began to tumble and lost half of their value by Sept. 25. They began to rebound after the company said the following week that it had reached a deal to roll over 86.3 billion yuan of convertible bonds and eliminate a looming January repayment deadline.

Evergrande has fallen short of its target of retiring 150 billion yuan ($22.3 billion) in borrowing a year. Its total debt rose 4% from Dec. 31 to 835.5 billion yuan as of June 30.

Last month, the company said its cash balance as of June 30 stood at 204.6 billion yuan, giving it "abundant working capital." The company has been offering discounts of as much 30% on its properties to achieve sales of 800 billion yuan this year. Its sales in the first eight months of the year rose 22% to 450.6 billion yuan.

The group is also seeking to list more assets on the stock market. It has received approval from the Hong Kong Stock Exchange to spin off its property management unit, which could bring in up to $2 billion, according to people familiar with the situation. The company's Hong Kong-listed electric vehicle unit has also announced plans to raise funds through a listing on Shanghai's STAR Market.

Under a deal pending since 2016, the group has plans to merge its Hengda Real Estate into a state-owned company listed on the Shenzhen Stock Exchange. The merger was supposed to be completed by January or holders of 130 billion yuan of its convertible bonds could have demanded repayment from Evergrande.

Last month's deal has removed that looming deadline. But some 70% of Evergrande's debt will still mature by mid-2022.

Evergrande's borrowings are widely considered large enough to send ripples throughout China's $40 trillion financial system, driving worries over potential cross defaults on loans from banks and trusts.

While Chinese authorities in the past have supported large businesses in the interests of financial stability, they have changed tack over the past two years to instill financial discipline, standing aside as some companies have defaulted on both onshore and offshore bonds.

Credit Suisse, Bank of America, Huatai International and UBS are arranging Evergrande's current share placement.

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