20210803-招银国际-EVERRE_–_Stock_take_on_listed_investments_3页_508kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary from the Fixed Income Department of CMB International Securities Limited (CMBIS), analyzing the recent asset sales by Evergrande Group and their implications for the company's liquidity and financial strategy. The commentary is aimed at investors and financial professionals, providing insights into the company's current situation and investment recommendations.

Key Information

• Asset Sales and Liquidity Focus: Evergrande has been actively selling stakes in its subsidiaries and listed investments to generate liquidity. These sales are seen as a priority to meet near-term obligations rather than restructuring.
• Recent Stake Sales:
  • Sold 11% stakes in HengTen to Tencent for HKD3.25bn, with net proceeds of HKD1.2bn (cUSD150mn).
  • Sold 7.08% stakes in Shenzhen HTI to Vanke for undisclosed price.
  • Sold 29.99% stakes in China Calxon (000918 CH) to Shenzhen Huajian for RMB2.8bn.
• Estimated Proceeds: The net proceeds from the sale of HengTen and China Calxon stakes since mid-July 2021 are estimated at over USD670mn.
• Market Value of Listed Subsidiaries: The attributable market cap of Evergrande's listed subsidiaries and investments is USD19.5bn, which is close to the USD19.8bn of its total offshore bonds.
• Subsidiary Ownership and Market Cap:
  • Evergrande Property Services Group Ltd (6666 HK): 60.96% ownership, attributable market cap USD4,415.38mn.
  • China Evergrande New Energy Vehicle Group Ltd (708 HK): 64.98% ownership, attributable market cap USD10,236.53mn.
  • HengTen Networks Group Ltd (136 HK): 26.55% ownership, attributable market cap USD1,617.44mn.
  • E-House China Enterprise Holdings Ltd (2048 HK): 9.82% ownership, attributable market cap USD72.89mn.
  • Shengjing Bank Co Ltd (2066 HK): 36.40% ownership, attributable market cap USD2,841.16mn.
  • Guangdong Meiyan Jixiang Hydropower Co Ltd (600868 CH): 5.00% ownership, attributable market cap USD40.81mn (entire stake pledged).
  • China Calxon Group Co Ltd (000918 CH): 27.85% ownership, attributable market cap USD289.90mn.

Main Views

• Liquidity Strategy: Evergrande is prioritizing liquidity through asset monetization, as opposed to restructuring. This is supported by media reports indicating the company is facing liquidity issues, not insolvency.
• Investment Recommendation: The report recommends that investors collapse long-short positions and consider buying short-dated EVERRE/TIANHL bonds, including EVERRE'22s and TIANHL'22s, due to the potential for continued asset sales and the company's ability to meet near-term obligations.
• Asset Utilization: The company's listed subsidiaries and investments represent a significant source of funding. The report suggests that these assets are not pledged, and could be used to support liquidity in the short term.

Regulatory and Legal Notes

• The sale of 40.964% stakes in Guanghui to Shenergy is pending regulatory approvals.
• The report is prepared by CMBIS, a wholly owned subsidiary of CMB International Capital Corporation Limited, which is itself a subsidiary of China Merchants Bank.
• The author certifies that the views expressed are personal and not influenced by compensation or conflicts of interest.
• The report is not an offer to buy or sell securities, and CMBIS does not provide individually tailored investment advice.
• The report is subject to change and may include different assumptions and conclusions in other publications.

Important Disclosures

• Investment Risks: There are inherent risks in investing in securities, and past performance does not guarantee future results.
• Conflict of Interest: CMBIS may have investment banking relationships with the companies discussed, which could affect the objectivity of the report.
• Distribution Restrictions: The report is intended for specific audiences, including major US institutional investors, and may not be distributed to others without consent.
• Legal Responsibility: In Singapore, CMBIS may accept legal responsibility for the contents of the report only to the extent required by law for non-accredited investors.

Conclusion

Evergrande's asset sales are a strategic move to enhance liquidity, with the company's listed subsidiaries and investments serving as a critical funding source. Investors are advised to adjust their positions based on the short-dated bonds, while being mindful of the risks and regulatory considerations associated with the report.