Caixin
Jul 28, 2021 11:03 AM
BUSINESS & TECH

Evergrande Cancels Special Dividend, Gripes About S&P Downgrade

An Evergrande spokesperson said late Monday that the company “deeply regrets” the downgrades and does not understand why S&P made them. Photo: VCG
An Evergrande spokesperson said late Monday that the company “deeply regrets” the downgrades and does not understand why S&P made them. Photo: VCG

Investors continued to sell China Evergrande Group’s stock Tuesday as the debt-ridden property giant scrapped a planned special dividend and after global ratings agency S&P cut its credit rating.

Evergrande said it decided to cancel the payout based on its own consideration about current market conditions, the interests of shareholders and creditors, and the company’s “long-term development,” according to a Tuesday filing to Hong Kong Stock Exchange.

The decision came as analysts were speculating that the company planned to use the special dividend to revive investor confidence, Bloomberg reported Monday. 

Evergrande’s stock plunged over 13% to HK$5.8 (75 U.S. cents) in Hong Kong Tuesday, its third straight day of declines. Shares of its electric vehicle unit plummeted over 16%.

Analysts and investors have been worried about Evergrande’s financial health given its piles of debt and China’s regulatory moves to curb leverage in the real estate industry. On Monday, S&P Global Ratings Inc. downgraded Evergrande and two of its subsidiaries from B+ to B- with a negative outlook, pushing the ratings deeper into junk-bond territory and marking the third downgrade by a major global ratings agency in the last 30 days.

“We downgraded the ratings because the recent weakening in Evergrande’s funding access is leading to significant risks in its ability to execute its debt reduction plan in an orderly manner,” S&P said in a note. “A tightening credit environment is increasingly impeding such efforts.”

An Evergrande spokesperson said late Monday that the company “deeply regrets” the downgrades and does not understand why S&P made them, blaming “malicious short-selling” overseas that has caused investors to panic.

But overseas ratings agencies weren’t the only ones to reevaluate Evergrande. China Chengxin International Credit Rating Co. Ltd. on Tuesday gave subsidiary Evergrande Real Estate Group Ltd. a negative outlook (link in Chinese), citing the parent’s delayed repayment of some commercial notes and tightening regulatory oversight on the industry.

Evergrande’s stock and bond prices have tumbled over the past few months amid a series of bad headlines that has deepened investor concerns about the once high-flying developer’s ability to pay its bills. Last week, a local court in East China’s Jiangsu province froze $20 million in an Evergrande bank account at the request of Guangfa Bank Co. Ltd., triggering another sell-off. But the stock rebounded after the company announced that it had reached an agreement with the bank over the loan dispute, though the rebound only lasted for one day.

The company has launched mass sales promotions and slashed land purchases in an effort to repair its balance sheet, but S&P warned that the aggressive promotions would lead to slimmer profit margins that would in turn damage its creditworthiness.

More than $6 billion in Evergrande’s offshore bonds are set to mature in 2022, up from $4.5 billion in 2021, with repayments heavily loaded in the first half of the year, S&P said in the note. Investment bank UBS AG has lowered Evergrande’s target price to HK$3.5, maintaining its “sell” rating.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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