Shares in China's biggest property developer surged on Wednesday after it reached an agreement with key investors that helps it avoid a cash crunch that some observers fear could hit the global financial system.
The future of China Evergrande Group has been thrown into doubt as it struggles to cover repayments on debts totalling more than $120 billion, with a letter last week circulating on Chinese social media appearing to show it asking the government in Guangdong for help.
The company – the world's most indebted developer – refuted the claims on Thursday, saying they were "fabricated" and "pure defamation", adding it would take legal action.
Its shares plunged by a fifth in Hong Kong, while its Shanghai-listed stock was suspended and ratings group S&P downgraded its credit outlook to "negative".
Analysts have warned that a default on huge debts owed by the company, founded by billionaire Xu Jiayin and a key player in China's building boom, could send bad loans cascading through the country's opaque banking system.
But the firm moved to stabilise its affairs on Tuesday after key investors agreed not to sell 86.3 billion yuan ($12.6 billion) in Hengda Real Estate, an Evergrande unit.
The company had raised billions of dollars by selling stakes in the unit and pledged to repay the cash if it did not float by January.
There had been fears they would push to get their money but the developer said in a statement the investors "will continue to hold their interests in Hengda Real Estate, with their percentage of equity interests remaining unchanged".
Tuesday's deal, which also starts the process of shoring up a further 28 billion yuan of shareholdings, buys some time for the developer to sort out its debt repayments.
Evergrande shares jumped 17.9% in Hong Kong on Wednesday, according to Reuters, which said it was one of the most actively traded stocks. That followed a more than 20% jump Monday after the firm sought to reassure investors about its future.
Wednesday's rally was also helped by news that Evergrande had filed to spin off its property services business in Hong Kong, helping to raise much-needed cash.
The Guangzhou-based developer said its subsidiary Evergrande Property Services Group Ltd has submitted an application for a listing on the Hong Kong bourse. Reuters publication IFR has said the float would raise $2 billion.
Vehicle group to list in Shanghai
Meanwhile, the developer's vehicle manufacturing arm, China Evergrande New Energy Vehicle Group Ltd <0708.HK>, said it intended to apply for a listing of its shares on Shanghai's Sci-Tech Board.
Shares of China Evergrande New Energy Vehicle surged as much as 9.9% on Wednesday, while internet services unit HengTen Networks Group <0136.HK> rose as much as 8.6%.
According to Bloomberg, the developer owes $88 billion to banks and other lenders inside China and has borrowed a further $35 billion from bondholders around the world.
Evergrande is under significant pressure to slash its massive debt as China's government considers borrowing by it and other real estate developers excessive and a threat to local banks and thousands of investors at home and abroad, as well as other entities that have done business with the group.
And while these latest deals will buy the company some time, Bloomberg Intelligence analysts Kristy Hung and Patrick Wong warned that the conglomerate is not out of the woods yet.
"Evergrande faces the task of restoring the conﬁdence of buyers and lenders, and still risks liquidity woes despite investors tossing it a ﬁnancial life jacket," they said.
AFP, with reporting by Reuters