(Bloomberg) — China Evergrande Group shares fell after the embattled developer completed about 71% of its sales target in the two months through October, offering its steepest discount in history that could squeeze margins.



a tall building: The flags of China, right, and the Hong Kong Special Administrative Region (HKSAR), second right, are flown near the China Evergrande Centre, left, in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who've lent the world's most indebted developer more than $120 billion.


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The flags of China, right, and the Hong Kong Special Administrative Region (HKSAR), second right, are flown near the China Evergrande Centre, left, in Hong Kong, China, on Friday, Sept. 25, 2020. China Evergrande Group is facing a crisis of confidence among creditors who’ve lent the world’s most indebted developer more than $120 billion.

The shares fell as much as 2.7% after it said contracted sales were 142 billion yuan ($21 billion) between Sept. 1 and Oct. 8, according to an exchange filing Friday. It generated 173 billion yuan for the two months through October last year.

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The world’s most indebted developer is trying to cut debt by bolstering sales, offering steep discounts at 800 projects across the nation during the Golden Week holiday, traditionally a popular time for home-hunters to buy. With $120 billion in debt– of which at least $5.8 billion is due in the next two months — it is under pressure from investors and regulators to curb leverage.

”The latest strong sales performance, coupled with previous settlement with most of strategic investors for its listing restructuring and its upcoming two IPOs, should be largely to ease the concern about its default or liquidity risk,” said Raymond Cheng, a property analyst at CGS-CIMB Securities.

Read more about how Evergrande skirted its cash crunch

Evergrande is planning to conduct a secondary listing of its electric vehicle unit in China and spin off its services management unit.

Evergrande could sustain its price cuts throughout the year and squeeze gross margins to 24% compared with the consensus forecast of 27%, according to

Reuters
Reuters

HONG KONG (Reuters Breakingviews) – China’s second-largest developer Evergrande has frightened creditors owed nearly $15 billion into converting obligations into unlisted shares. Details are scant, but this marks another miraculous escape for founder Hui Ka Yan regardless. The fact that creditors accepted this deal highlights how real estate has trapped policymakers.

Earlier in September Reuters reported that Evergrande had sent a letter to the Guangdong provincial government asking for accelerated approval to float subsidiary Hengda Real Estate via reverse merger. It warned of risk to China’s financial stability if Evergrande failed to meet a January listing deadline, which would have triggered some 144 billion yuan in payments to backers like electronics retail giant Suning. Evergrande said the letter is fake. But the developer’s situation is undeniable – 400 billion yuan of short-term debt as of June – and Evergrande stock and bond prices fell in response to the report.

Yet within few days Hui had managed to persuade creditors holding 80% of the obligations, including Suning’s chairman Zhang Jindong, to appear behind him during a signing ceremony in which they pledged to renounce their claim to payment and retain shares in unlisted Hengda instead. That sounds like a much worse deal, especially since the listed state-owned developer that was supposed to reverse-merge with Hengda is showing signs of very cold feet. On Sept. 27 it reiterated that such a restructuring would be “unprecedented”.

Chinese officials appear averse to letting Hui cut debt levels – already in excess of Beijing’s “three red lines” – by foisting risk onto retail stock investors. But knowing that, why did so many Evergrande creditors accept a proposal that converts hard cash payments into hard-to-offload equity stakes? It’s possible the offer was sweetened with higher dividends, but not everyone is biting: state-owned Shandong High