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Evergrande reneges on special dividend two weeks after pledging it, in a surprise U-turn that sends shares, bonds crashing

  • Evergrande decides to forego a special payout announced on July 15, according to a surprise filing to the Hong Kong stock exchange
  • Shares of the developer closed 13.4 per cent lower at HK$5.70, extending the 48 per cent plunge from their January high

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Hui Ka-yan, the chairman of China Evergrande Group. He controlled 70.8 per cent of the company’s shares as of December 31 last year. Photo: David Wong
China Evergrande Group, the country’s biggest home builder and the world’s most indebted developer, unexpectedly scrapped a special dividend two weeks after announcing it, in a corporate U-turn that spooked investors about its financial standing.

Evergrande’s board decided to forego the special payout announced on July 15, according to a surprise filing on Tuesday to the Hong Kong stock exchange, citing “the current market environment, the rights of the shareholders and creditors, and the long-term development of the various businesses under the group”, without divulging the amount of the dividend.

The unexpected reversal caused investors to dump Evergrande’s shares and bonds, amid concern that the developer that has touched all three of the Chinese central bank’s so-called red lines on indebtedness may have a long way to go to extricate itself from its financial woes. Shares of the Shenzhen-based developer clawed back some of its earlier losses to close 13.4 per cent lower at HK$5.81 in Hong Kong, extending a 66 per cent plunge from their January high, while a bond due 2025 and a note due 2022 both fell, en route to a new low, fresh from a ratings cut by Standard & Poor’s (S&P) on Monday.

“Investors were disappointed as the company set the expectation for the payout, [only to] withdraw it all of a sudden,” said CGS-CIMB’s property analyst Raymond Cheng, who recommends investors “hold” their purchase of Evergrande, cutting his rating from “add” on April 1, with a price target of HK$20.10.

China Evergrande Group's Emerald Bay residential property project under construction in Hong Kong’s Tuen Mun area on May 13, 2020. Photo: May Tse
China Evergrande Group's Emerald Bay residential property project under construction in Hong Kong’s Tuen Mun area on May 13, 2020. Photo: May Tse
Controlled by the high-profile real estate magnate Hui Ka-yan, Evergrande is the sole developer out of China’s 10 biggest builders to have exceeded all three of the central bank’s debt limits, and is barred from taking on any additional debt. The debt ceilings, outlined last August, comprise a 70-per cent liability-to-asset ratio that excludes advanced receipts, a net debt-to-equity ratio of 100 per cent and a one-time cash to short-term debt ratio.

The company slashed its interest bearing liabilities to 570 billion yuan (US$87.9 billion) from a 2020 peak of 870 billion yuan, Evergrande said in a June 30 press statement, adding that it had cut its net debt-to-equity ratio to below 100 per cent, bringing it within one of the central bank’s three red lines.

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