Evergrande announced Wednesday that it had terminated an agreement to sell a controlling stake in its property management unit to rival Chinese developer, Hopson, for about 20 billion Hong Kong dollars ($2.6 billion).
Hopson said in a statement that it was ready to complete the deal, but “other parties” had attempted to change the terms of the agreement.
A critical weekend
The deal’s collapse is bad news for Evergrande, which is just days away from a potential formal default.
The company faces a deadline this weekend when a 30-day grace period expires on interest payments owed to investors.
Halley said that a failure to make the payments “could trigger a cross-default on other debt instruments,” which may allow some of Evergrande’s other creditors to demand their money back.
“They’ll run out of wiggle room here,” he said.
A formal default could send shockwaves through global stock markets on Monday, said the analyst. It could also prompt Chinese regulators to take action.
“The Chinese government has been deafening in its silence on this issue,” said Halley. “This may force the hand of the central government to finally act more directly.”
That was echoed by Chinese Vice Premier Liu He at a financial forum in Beijing on Wednesday.
But he stressed that risks were generally under control, the capital needs of property developers were being met, and the overall trend of “healthy development” of China’s real estate market would not change, according to Xinhua.
Struggling to recover
In recent weeks, Evergrande has been trying to resolve its cash flow issues by attempting to sell some of its assets, such as partial stakes in its electric vehicle and property services businesses, as well as an office tower in Hong Kong.
But the company hasn’t had much luck in its search for buyers.
The group has also warned of further hits to its business over the last few months.
From September 1 to October 20, contract sales of properties were just 3.65 billion yuan ($571 million), it said Wednesday. That represents an approximately 97% drop compared to the same period last year, according to Halley.
— CNN’s Beijing bureau contributed to this report.