Does Evergrande Group Need To Monetize Its Assets For A Comeback?

Just recently Evergrande group, which is one of the biggest Chinese property developers, sold its stake in Hong Kong based internet unit for a massive sum of $400 Million.

But is that really sufficient for settling the debts in their books and ensuring the investors of their liquidity position? Probably not!

Stock 60% Down Year To Date

Evergrande Group’s stock has taken a nosedive and is ‘technically drowning’ as it trades 60% lower YTD. With the cash crunch in the company, it needs to find more avenues to bring in the much needed cash to repay its commitments.

The property developer does not have many alternatives left. Due to poor ratings by credit agencies, the company will find it difficult to raise more financing or get loans from the marketplace.

Poor Credit Ratings

Just last week, Evergrande Group was downgraded from rating B to CCC from by ‘Fitch’ agency due to a worsening financial situation. The global data analytics company S&P also changed outlook to ‘negative’ and dropped credit rating by two ranks.

CCXI of China said that Evergrande’s repayment ability with current financial conditions will take a toll and hence also downgraded its outlook to ‘negative’.

Offloading Assets

In such a situation, the developer needs to find a way to monetize its assets, ie, offload them. And it isn’t surprising that Evergrande Group has already started doing so.

With the most recent off-loading of its Internet unit, it also sold part of it’s investment in Netflix-style streaming service HengTen Networks Group for $420m.

Other non-core assets that are a part of Evergrande include: a.) stake in a bottled water company b.) an EV company c.) a football club

High Liabilities

All of the afore-mentioned non-core assets can play a vital role in rejuvenating the balance sheet of the company and settling its liabilities.

It has almost $300 billion on the liabilities side of the balance sheet with high-interest bonds that are bound to make things nasty.

How Did The Debt Go Out Of Control?

To answer this, an analyst at S&P Matthew Chow will be of great help. He says “The company always thought about expanding into other sectors. That’s also how they got themselves so much debt.” (Source and courtesy: Financial Times)

Do you think that Evergrande can make a comeback given their liquidity pressures and cash-crunch? Tell us your thoughts in the comments.