3 min read.Updated: 18 Nov 2021, 07:43 PM ISTAnniek Baoat
Developer agrees to unload its remaining 18% stake in HengTen Networks Group at a substantial discount
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Cash-strapped property giant China Evergrande Group said it will sell its entire stake in a company that provides online video-streaming and Internet home services for the equivalent of $273 million, closing a chapter in a six-year business venture with internet behemoth Tencent Holdings Ltd.
Evergrande said Thursday it has agreed to unload its remaining 18% stake in HengTen Networks Group Ltd. at around a 24% discount to the Hong Kong-listed company’s stock price a day earlier. The developer, which recently reported around $300 billion in liabilities, and has been scrambling to sell assets to make interest payments and avoid defaulting on its international bonds.
The buyer of its HengTen stake is a little-known Hong Kong company controlled by an investor named Li Shao Yu. Evergrande said it plans to use proceeds from the sale for general working capital.
HengTen used to be an Evergrande subsidiary before a series of share sales by the developer as it scrambled to raise money this year. Its other big shareholder is Tencent, which operates the popular WeChat do-everything app. HengTen is a portmanteau of Evergrande’s Chinese name, Hengda, and Tencent.
Evergrande and Tencent paid a total of less than $100 million in 2015 to jointly take over what was a struggling business. Then called Mascotte Holding Ltd., it had incurred heavy losses from activities that included securities trading, sales of camera accessories and an ill-fated foray into manufacturing solar-grade polysilicon in Taiwan. Evergrande took a 55% stake, and Tencent 20%.
The two giants set out to remake HengTen as an internet community services network with many resources for residents of Evergrande-built properties as well as homeowners, and leverage on Tencent’s technological expertise. It aimed to make money from selling furniture, household fittings and interior-design services online. It also rolled out its own branded ceramic tiles, wood flooring and bathroom appliances.
HengTen more recently expanded into online content streaming. In the past two years, it has acquired Pumpkin Films Ltd., a small video-streaming platform, and Shanghai Ruyi Movie Television Production Co., which mainly produces films and distributes movies.
HengTen’s market capitalization topped $17 billion earlier this year. It dipped below $2 billion earlier this month, according to FactSet.
Shares of HengTen jumped 25% Thursday after Evergrande said it is selling out. Tencent earlier this year bought a chunk of Evergrande’s stake, raising its own to 23.9%. But it has recently been selling shares, and as Wednesday Tencent’s stake stood at 19.7%.
Evergrande said it will incur a loss equivalent to $1.1 billion from the disposal, because the sale price was sharply lower than the book value of HengTen’s shares that it had recorded at the end of June.
Evergrande borrowed heavily and expanded aggressively for years, buying hundreds of parcels of land across China, building giant high-rise residential developments and selling many apartments years before they were completed. It also branched out into theme parks, healthcare services and electric vehicles.
Over the summer, Evergrande’s cash-flow problems mounted and the prices of its dollar bonds plunged to deeply distressed levels. It has failed to pay many of its contractors and suppliers. Shanghai-listed construction company and decoration supplier Shanghai Trendzone Holdings Group Co., said this week it has filed lawsuits against Evergrande for the equivalent of $37 million in unpaid bills.
Evergrande has sold assets including two jets and stakes in a Chinese bank and a Hong Kong residential project to raise money to meet its debt obligations. Over the past month, the developer made several overdue interest payments on its dollar bonds shortly before the end of 30-day grace periods. Evergrande said Thursday that it will get a fifth of the proceeds from its HengTen stake sale early next week, and the rest within two months.
The developer is on the hook for coupon payments on more onshore and offshore bonds this year, including $82 million that was due Nov. 6 but with a 30-day grace period, according to debt-research firm CreditSights. On Thursday, an Evergrande dollar bond that matures in 2025 was quoted at about 23.4 cents on the dollar, according to Tradeweb, indicating investors still expect the company to end up in default.