Evergrande To Scale Down Its Real Estate Business

China-based Evergrande Group has been in hot water due to its outstanding debt of USD 300 Billion. Amidst the concerns among investors regarding the delay of its payment interests, the company has paid one of its dues worth USD 83.5 Million in dollar bonds ahead of the time. Even though it has built a positive sentiment, it has missed several deadlines on bond payments.

According to Bloomberg, Evergrande needs to pay around USD 7.4 Billion in bond payments until next year. Its next payment worth USD 45.2 Million is due Friday, while it needs to pay around USD 338 Million by end of the year. The real estate behemoth is striving hard to stay afloat before considering the default. Many analysts consider the company “too big to fall,” as the default of this company can lead to what Lehman Brothers default brought to the 2008 global economy.

Good News

Evergrande announced on Sunday that it has resumed construction development work for more than 10 projects across six cities. The announcement was made on the company’s WeChat social media account. It said that it will ensure that it complies with all government regulations and fulfill its social responsibilities.   The company owns more than 1,300 real estate projects in China, accounting for over 2% share in the country’s real estate market. Evergrande’s shares on Hong Kong Exchange opened 6% higher on Monday.

The Shift

Evergrande is planning to scale down its real estate business and build its electric vehicle (EV) business. The company’s largest investor Hui Ka Yan said that it won’t buy any land for the next decade. According to the Securities Times Report, its real estate sales will tank to USD 31 Billion in the next 10 years from USD 109 Billion in 2020. Evergrande added that the 40 construction projects at Guangdong province will be delivered smoothly.

The company’s shift to the EV segment would become a great challenge for it. Various companies such as Tesla, BYD Auto, and Nio are some of the key players in China. Evergrande NEV’s stock surged 17% at the opening of the trading on Monday. Its EV business subsidiary is planning to launch its first EV car starting next year from the Tianjin factory.

Last month, Evergrande NEV shares slumped 26% after it admits that it is facing a “serious shortage of funds.” Since the beginning of the year, its share has tanked more than 90%, which in turn, has decreased its market cap by over USD 84 Billion. Earlier, the company said that it would produce 1 Million cars by 2025. Some of the analysts addressed Evergrande’s decision as fuel to stay relevant in the market. For instance, Raymond Cheng, CGS-CIMB Securities’ head of China research, said that increasing support to the EV sector in Beijing makes sense to shift from the land business. “This is the best outcome, if it just focuses on existing developments and maintains the operation,” he said.