A lucky investor who snapped up Evergrande’s stake in a firm for a steal is now sitting on a goldmine after the share price suddenly surged.
One savvy investor has used Evergrande’s woes to their advantage, after snapping up the struggling company’s stake in a firm for a bargain – before the price soared.
The Chinese property juggernaut has been teetering on the brink of collapse for months after racking up staggering debts worth $A420 billion, making it the world’s most indebted real estate firm.
That massive debt has seen Evergrande launch a fire sale in a desperate bid to raise much-needed cash by selling off assets, often at a low price.
That’s exactly what happened on November 17, when Evergrande sold its 18 per cent stake in internet services company HengTen Networks Group Ltd.
That slice was sold to investor Li Shao Yu for just $HK1.28 ($A0.23) a share, at a total cost of $HK2.13 billion ($A378 million).
But in the days since, the stock has surged by an astounding 140 per cent to around $HK4 ($A0.71), according to Bloomberg, which also reported Evergrande made a loss of $HK8.5 billion ($A1.5 billion) on the sale.
That means Li Shao Yu – who owns Allied Resources Investment Holdings Ltd, the company which officially acquired the shares – has seen the value of her investment soar to $HK6.67 billion ($A805 million) in just a few days.
It comes after Evergrande has sold off – or attempted to sell – a string of assets, and amid reports billionaire founder Hui Ka Yan may have dipped into his own wealth to the tune of $1 billion in a bid to raise cash.
Evergrande’s surprise feat
Despite Evergrande’s ongoing struggles, it has so far managed to avoid defaulting on payment deadlines by mysteriously coming up with the cash at the very last moment.
But little detail has been given as to how the company has managed to avoid disaster time and time again at the 11th hour.
IG markets analyst Kyle Rodda recently told news.com.au he believed that while there was no clear evidence yet, it was likely that Evergrande was scrambling to sell off assets, and that authorities were probably trying to co-ordinate deals “behind the scenes”.
“Looking at their financials, liquidity is an issue for the company, so it’s unlikely they are paying with their own cash,” he said.
“Conceivably, the money could be coming from the personal wealth of Hui Ka Yan. This hasn’t been disclosed publicly, and there’s no evidence I have seen that this is happening, but China’s government has made public statements that they see it appropriate that this occurs, so it probably can’t be discounted.”
Mr Rodda said he suspected Evergrande was not following a “deliberate strategy”.
“I think the company is probably on tenterhooks, and doing what it can to cover its liabilities,” he said.
“I think it shows the stress on the business, and the precarity of it as it teeters on default.
“My strongest suspicion would be that the money (used to meet repayments) can be tied back to either central or provincial authorities.
“They would be the most stable source of liquidity for the company, and would have the ability, not to mention the incentive, to ensure the company meets its obligations.”
But there are fears Evergrande won’t be able to keep it up forever.
Last week, S & P Global Ratings analysts said in a report they believed Evergrande would default and the company’s “massive debt will catch up with it”.
“The firm has lost the capacity to sell new homes, which means its main business model is effectively defunct. This makes full repayment of its debts unlikely,” the report said.
“We still believe an Evergrande default is highly likely.”
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