Please ensure Javascript is enabled for purposes of website accessibility

Why China Evergrande Group Stock Soared 40% Today

By Rich Smith – Sep 29, 2021 at 1:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

$1.5 billion, cash! Evergrande can pay a lot of interest with that.

What happened

After barely making one debt payment last week, and apparently missing another, China Evergrande Group (EGRN.F -33.33%) got a reprieve Wednesday -- even as rumors swirled that the company may have missed a third payment today.

In 1:25 p.m. EDT trading, shares of the beleaguered Chinese property behemoth are up 40.8%.

Red map of China with a rising green stock arrow superimposed on top.

Image source: Getty Images.

So what

As Reuters reports today, at least "some" of Evergrande's bondholders say they have not yet received their coupon payments on $47.5 million in interest due from Evergrande Wednesday.  

Now, that sounds like bad news, but here's the thing: Quoting "sources," Reuters also says (and other media outlets confirm) that Evergrande has reached a deal to sell to state-owned Shenyang Shengjing Finance Investment Group a 1.75 billion-share stake that Evergrande holds in Shengjing Bank.

Now what

If these sources are correct, then Evergrande could be about to receive a lifeline in the form of a $1.5 billion cash payment for its Shengjing Bank shares -- cash that it will be able to deploy to meet its Wednesday interest payment obligation, and cure the bond payment that it missed last week, before the 30-day grace period on the latter runs out.

Admittedly, Evergrande isn't out of the woods entirely yet -- CNBC reports that the company still has debt payments coming due in October, in November, and in December, too. But $1.5 billion in cash should help it to meet those obligations in a timely manner. Moreover, the fact that it is a "state-owned bank" that is stepping in to buy Evergrande's bank shares suggests that the Chinese central government may be taking a more active role in helping Evergrande out.  

Investors had better just cross their fingers and hope the government continues to do so.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

$0.06 (-33.33%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.