“Debt” and “capital chain” have always been hot topics receiving market attention for real estate companies. On September 24, a document on the restructuring of Evergrande Real Estate leaked online and sparked public opinion. Immediately after that, the Evergrande Department experienced a “double loss in stocks and bonds” the next day.

However, within just a few days, Evergrande dealt a combo punch in response to the crisis and successfully lifted the funding alert. On September 28, after giving the market a series of reassurance pills, Evergrande's three stocks rose across the board, and the bears suffered a severe setback. On September 30, China Evergrande (03333) stock opened higher and moved higher, surging 19.4% throughout the day to close at HK$19.7. However, behind this, it is inseparable from Evergrande's three precise and powerful counterattacks after the rumor spread.

Strict response to direct attacks on “topics”

The Zhitong Finance app learned that on the night the rumor appeared on September 24, Evergrande issued an emergency announcement denouncing the relevant documents and screenshots as “fabricated out of thin air and pure slander,” expressing “strong condemnation,” and “the case has been reported to the public security authorities and resolutely used legal weapons to protect the company's legitimate rights and interests.”

However, the core view of this rumor is that if Evergrande is unable to complete the restructuring in a timely manner, it will not be able to cope with the pressure of the 130 billion war for redemption, causing the capital chain to break down.

Faced with this “major contradiction,” on September 29, Evergrande Real Estate signed a supplementary agreement with the 86.3 billion war investment out of the 130 billion war investment. The war investment agreed to switch to long-term common equity holdings, and the share ratio remained unchanged. Of the remaining 43.7 billion yuan war investment, Evergrande has completed negotiations with the 15.5 billion war investment. Currently, formalities are being processed, and discussions on the 28.2 billion war investment are ongoing.

Analysts believe that all strategic investors have shared Evergrande's development dividends through strong recognition of Evergrande's management and healthy development, and full confidence in Evergrande's development prospects, that only by completing the signing and negotiation of the 101.8 billion investment agreement in such a short period of time, will the investment of the war investment agree to give up the repurchase and increase of shares and convert them into common stock, fully demonstrating that through these years of cooperation, all strategic investors have shared Evergrande's development dividends. They are highly appreciative of Evergrande's management and healthy development, and full confidence in Evergrande's development prospects.

In response to this long and short chess game, Evergrande took a positive response to the core issues, which accelerated the process of winning this game, and took the initiative step by step.

The listing of both properties and automobiles introduces new capital

On the evening of September 25, Evergrande Motor Company (00708) issued an announcement. The board of directors deliberated and passed a resolution on the 25th recommending the issuance of RMB shares under a special mandate and related matters. It intends to apply for an initial public offering of RMB shares and listing on the Science and Technology Innovation Board of the Shanghai Stock Exchange.

According to information from the Zhitong Finance app, as early as mid-September, Evergrande Motor issued an announcement to raise HK$4 billion through the placement of new shares to include a financing package. Meanwhile, Evergrande Motor also plans to issue RMB shares to be listed on the Science and Technology Innovation Board, while Deutsche Bank said that if Evergrande Motor plans to issue it smoothly, it would mean a profit of at least HK$38.9 billion.

After a lapse of 4 days, on the evening of September 29, China Evergrande (03333) immediately followed the news that Evergrande Property Group Limited had submitted a listing application to the Hong Kong Stock Exchange. According to information, on August 13, Evergrande announced the introduction of a HK$23.5 billion investment for Evergrande Property, including 14 strategic investors including CITIC Capital, Tencent Holdings, Chow Tai Fu, and Alibaba's Yunfeng Fund.

Among them, Evergrande's chief financial officer Pan Darong once stated at Evergrande's interim results conference that the move to introduce 23.5 billion dollars is expected to reduce Evergrande's net debt ratio by 19 percentage points.

However, according to Galaxy Lianchang's forecast, the listing of both properties and automobiles will drastically reduce the net debt ratio by 50 percentage points; furthermore, with the drastic reduction in land purchases, Evergrande's net debt ratio is expected to fall below 100% in 2021.

As for the current spin-off and listing of properties and automobiles, on the one hand, the investment to participate in the company's placement has undoubtedly become a major winner behind it. On the other hand, Evergrande's support through war investment itself has helped it reduce its net debt ratio, yet with the listing of the two major sectors, the overall net debt ratio will drop drastically, providing reassurance to the market.

Take the initiative to shine at the “hard core” base and snipe the bears

After the rumor, the company's stock price rebounded as expected. Apart from confronting the capital rumor, it is inseparable from Evergrande's own strong “hard power.” On the evening of September 25, Evergrande issued an announcement announcing the company's latest business situation, and once again strongly responded to the rumor with real data, showing a solid “home base” from five major aspects:

1. The cash balance as of June 30 was 204.6 billion, and the cumulative sales volume as of September 24 was 504.9 billion yuan, sales payback was 452.1 billion yuan, and the cash flow was abundant;

2. Starting from September 3, a major national real estate promotion will be launched. It is estimated that sales will accumulate 200 billion dollars in September and October of this year;

3. There are 866 projects under construction nationwide, all of which are starting construction normally;

4. As of September 24, the company's interest-bearing debt had decreased by about 53.4 billion yuan compared to the end of March, financing costs were reduced by 2.24%, and loans maturing after September 25 were repaid 43.5 billion dollars ahead of schedule. Various debt reduction results have been remarkable;

5. In the 24 years since its establishment, there have been a total of 20,523 loans. Interest has never been paid late, and principal has never been overdue.

Analysts believe that “whether it is a record return on sales or the remarkable results of reducing debt, it has built a strong line of financial security for Evergrande.”

Xia Haijun, vice chairman of the board of directors and president of Evergrande, once revealed that the company's sales volume in the second half of the year exceeded 81 billion yuan. According to the forecast of a 56% removal rate in the first half of the year, it will sell 453.6 billion yuan in the second half of the year. I believe there is no problem in achieving the sales target of 650 billion yuan, and it is expected to reach the internal sales target of 800 billion yuan throughout the year.

The low cost of soil storage has always been one of Evergrande's characteristics. Up to now, the company's average floor prices in first-tier, second-tier, and third-tier cities are 3,711 yuan/square meter, 2,572 yuan/square meter, and 1,501 yuan/square meter, respectively. According to Xia Haijun, over the years, Evergrande has been stabilizing housing prices and has not won a single “land king.” The sales price is also basically stable at 9,000 yuan/square meter to 10,000 yuan/square meter, achieving the goals of stable housing prices, stable land prices, and stable expectations.

As far as Evergrande is concerned, due to the reasonable layout in the early stages, whether it is sales, cash flow, land storage, etc., it has shown good fundamentals and demonstrated a steady ability to withstand risks, so it has countered this rumor from the bottom up.

In addition to this, in the face of this rumor, international investment banks have rarely spoken out in unison to support the company. According to statistics, at least 11 international investment banks, including Bank of America, Deutsche Bank, J.P. Morgan, Lyon, DBS, Nomura, UBS, Barclays, Standard Chartered, Lianchang, and Huatai, have published analytical reports to analyze Evergrande's liquidity, risk situation, and growth potential from a professional and objective perspective, all optimistic about Evergrande's future market.

Under multiple favorable conditions, Evergrande's stock price has rebounded strongly by 43% for three consecutive trading days. Faced with the rumor, Evergrande issued an announcement as soon as possible to clarify, and successfully resolved the rumor crisis through three counterattacks. Compared to the stock price before shorting, it is even about 30% higher, which reflects the full return of market confidence.