Evergrande has managed to find a bit of cash to delay default.
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The massive Chinese property developer Evergrande has managed to find some money as it looks to pay what’s owed to investors.
According to reporting by the BBC, Evergrande has managed to rustle up US$145 million.
How has Evergrande raised US$145 million?
The Chinese business has been looking to sell some of subsidiaries and stakes in businesses that other parties may be interested in buying. It has managed to make a sale.
It has sold a 5.7% stake in media business HengTen Networks Group which produces films and television shows, and operates a streaming platform, according to reporting by the BBC.
The US$145 million sale is very close to how much it should be paying this week in overdue interest payments, being US$148 million.
Despite all the issues and missed payments that Evergrande has seen, it reportedly hasn’t officially defaulted yet because of the 30-day grace period for the payments.
Evergrande used to own a majority stake of HengTen at the start of the year, but it has been selling down its stake over the year. For example, Tencent was one of the buyers, purchasing a 7% stake for US$266 million. Tencent now owns around a quarter of the business.
The BBC also reported that Evergrande was successful at selling its UK-based electric motor making business, Protean, recently.
Evergrande still has a large debt pile of US$300 billion, with other interest payments that are coming due.
Other Chinese developers facing issues
There are concerns about several Chinese real estate businesses. Evergrande isn’t the only one.
Last week, it was reported that Kaisa Group Holdings Ltd was another Chinese developer that had missed a payment to investors. Kaisa Group reportedly said it was “facing unprecedented pressure on its finances due to a challenging property market”.
Other Chinese property businesses that are also facing financial issues and have missed payments include: Fantasia, Sinic and China Properties Group.
Uncertainty hovers over iron ore
China is the dominant buyer of iron ore from Australia, and property developers are big users of Australian iron ore through their vast steel consumption.
Brokers think that Chinese-related issues could see the iron ore price fall even further, despite its heavy decline of the last six months.
The broker UBS thinks that iron ore could fall to the US$80s over the next year or two. The expectation of lower iron ore prices is why it currently is bearish on the profitability of the ASX’s biggest iron ore miners.
UBS rates Fortescue Metals Group Limited (ASX: FMG) as a sell price with a price target of $15. The 力拓集团 (ASX: RIO) share price is also rated as a sell with a price target of $79. The broker is neutral on BHP Group Ltd (ASX: BHP), with a price target of $38, thanks to the strength of its other commodities as well as the recent sale of one of its coal assets.
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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.