It offered to pay minority shareholders 1.91 billion Hong Kong dollars ($245 million) for their 25% stake and take the company private. The offer represented a premium of about 83% over the stock’s closing price on September 28, the last full day before it was suspended from trade.
Going private can give a company more flexibility in thinking long term and meeting strategic goals, rather than being swayed by short-term market expectations. Shares in Chinese Estates Holdings soared 32% Thursday in Hong Kong as trading resumed following the announcement of the offer. They had been suspended since the morning of September 29.
Evergrande’s debt crisis has unsettled global investors in recent weeks, raising concerns about a potential domino effect on the broader Chinese economy and financial markets. Earlier this week, another Chinese developer Fantasia Holdings defaulted on its debt, as smaller players grapple with rising bond yields, funding dries up and property buyers turn more cautious.
The stress in China’s property sector has mounted since August 2020, when Beijing curbed excessive borrowing by developers to prevent the market from overheating.
Earlier this year, the Chinese government made clear that it would prioritize “common prosperity” in its policy goals and tame runaway home prices, which it has blamed for worsening income inequality and threatening economic and social stability.
Evergrande’s liquidity crisis has escalated in recent months. The company warned investors of its cash flow crisis in September, saying that it could default if it was unable to raise money quickly. In the past few weeks, it missed at least two bond interest payments.