Evergrande to Sell Further Stake in Tencent JV for $420M as Unpaid Suppliers Swarm

Debt-saddled developer China Evergrande Group continues to reduce its shareholding in its Hong Kong-listed internet division, HengTen Networks Group, as it announced plans yesterday to offload a HK$3.25 billion ($420 million) stake.

The news comes less than two months after the Shenzhen-based company led by billionaire Xu Jiayin sold a $570 million stake in HengTen, a mainland internet joint venture formed by Evergrande and Tencent in 2015 that went public through a backdoor listing the same year.

This time, Evergrande is selling a 7 percent share of HengTen to Tencent for HK$2.06 billion and a 4 percent share to an unnamed buyer for HK$1.18 billion, according to a disclosure filed by HengTen with the Hong Kong stock exchange on Sunday.

Upon completion of the transactions, Evergrande will hold 26.55 percent of HengTen and Tencent will own 23.99 percent, with Ke Liming, the founder of video app Pumpkin Films, controlling 40.4 percent.

Downsized Interest

Evergrande had held a 55.64 percent stake in HengTen as of last December, when Tencent had 19.32 percent. Ke was the owner of 36.99 percent of HengTen at the end of 2020; he attained his current stake with his share purchase from Evergrande in June. A disclosure form indicated that Ke paid HK$6 a share at the time, while Evergrande’s shares in the latest transactions are changing hands for HK$3.20.

The nearly $1 billion in cash-outs by Evergrande occur amid more grumblings from the embattled developer’s suppliers. Bloomberg reported last Friday that Huaibei Mining Holdings had filed a lawsuit against Evergrande in Anhui province, alleging that a subsidiary of the company missed payments.

Huaibei Mining is demanding RMB 401 million ($62 million) for fees and breach of contract, while another company, Peace Tree Wood, said Evergrande has missed payments on RMB 2 million in commercial bills.

Evergrande issued a statement on Friday seeking to clarify that “the lawsuit involves a construction contract dispute where the parties are disputing over whether payment under the contract is due and have resolved to settle the dispute through litigation”.

The developer said that its subsidiary, Evergrande Real Estate Group Co Ltd, is not a party to the contract, that the litigation has no legal and contractual basis, and that the unit has filed an objection in court.

Taming the Sheet

Aside from the HengTen stake sale, Evergrande in June shed a nearly $400 million interest in smaller developer Calxon. Also that month, the group made a show of repaying a $1.47 billion offshore bond a week ahead of its due date as a sign of commitment to taming its balance sheet.

Evergrande maintained its position as China’s top developer in 2020, with sales growing even more quickly during the pandemic, but profits slid by more than a quarter.

After frightening the Greater China financial industry with a plea for financial aid last year, the group joined the shift towards fiscal prudence in 2020.

According to an annual financial statement released at the end of March, Evergrande reduced its total debt by 14 percent in the second half of last year to RMB 717 billion as of 31 December. By the end of March, those obligations had been shrunk still further to RMB 674 billion.

The company has said it will further tame its balance sheet in the years to come, with a goal of bringing total debt down to RMB 350 billion by mid-2023.