Xi Jinping's dilemma in the face of the Evergrande crisis 4:49
(CNN) -
An emergency sale deal has been dropped that would have alleviated the cash crisis plaguing Chinese real estate giant Evergrande, the company reported Wednesday, bringing it even closer to a possible collapse.
Evergrande announced on Wednesday that a deal had been finalized to sell a stake in its management unit to rival real estate developer Hopson, for about 20 billion Hong Kong dollars (US $ 2.6 billion).
The stake gave control of the unit to Hopson, also based in China.
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The companies traded blame for the collapse of the deal, with Evergrande claiming in a stock exchange report that "the buyer had not met the prerequisite for making a blanket offering of shares in Evergrande Property Services."
Hopson, for his part, said in a statement that it was willing to complete the deal, but that "other parties" had tried to change the terms of the deal.
This aerial photo taken on September 17, 2021 shows the Evergrande Cultural Tourism City, whose construction in the city of Suzhou, China, has been slowed.
(Credit: VIVIAN LIN / AFP via Getty Images)
Shares of both companies, which had been suspended since the possible deal was announced, resumed their trading on Thursday in Hong Kong.
Evergrande slumped 12.5%, while Hopson was up 7.6%.
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A critical weekend
The failure of the deal is bad news for Evergrande, which is days away from a possible formal default on its debt.
The company faces a deadline this weekend, when a 30-day grace period expires for the payment of interest it owes to investors.
On September 23, Evergrande defaulted on a $ 83.5 million dollar bond payment.
The deadline to pay is Saturday, according to Jeffrey Halley, senior Asia Pacific market analyst at Oanda.
Halley said that defaulting on payments "could trigger a cross-default on other debt instruments," which could allow some of Evergrande's other creditors to demand their money back.
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"They will run out of room for maneuver," he said.
A formal default could shake global stock markets on Monday, the analyst said.
It could also lead Chinese regulators to take action.
Waiting for the government of China
"The Chinese government has been deafeningly silent on this matter," Halley said.
"This could force the hand of the central government to finally act more directly."
Authorities have tried to defuse the situation as investors worry about contagion risks.
Last week, China's central bank said Evergrande had mismanaged its business, but that the risks to the financial system were "controllable."
Chinese Vice Premier Liu He echoed this statement at a financial forum in Beijing on Wednesday.
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In a speech picked up by China's state news agency Xinhua, Liu acknowledged what he called "individual problems" in the housing market.
But he stressed that risks were generally under control, that the capital needs of real estate developers were being met and that the general trend of "healthy development" of the Chinese property market would not change, according to Xinhua.
Struggling to recover
In recent weeks, Evergrande has tried to solve its liquidity problems by trying to sell some of its assets, such as partial stakes in its electric vehicle and real estate services businesses, as well as an office tower in Hong Kong.
But the company has not had much luck in its search for buyers.
In another stock market report released Wednesday, the group said there had been "no significant progress" in the sale of its other assets, apart from the sale of a stake in a local lender that had already been announced.
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The group has also warned of further blows to its business in recent months.
Between Sept. 1 and Oct. 20, contract property sales were just 3.65 billion yuan ($ 571 million), it reported Wednesday.
This represents a drop of about 97% compared to the same period last year, according to Halley.
Evergrande is not the only company in trouble.
Recently, other real estate developers have revealed their own liquidity problems, asking lenders for more time to pay them or warning of potential defaults.
Beijing-based Modern Land is one such developer.
Last week, the company asked investors for more time to repay a $ 250 million bond due October 25, highlighting its own liquidity problems.
Trading in its shares was suspended in Hong Kong on Thursday, when a forthcoming announcement was revealed, without giving further details.
With information from CNN's Beijing office.
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