[HONG KONG] China Evergrande Group, the country's most indebted developer, rose in Hong Kong trading after the company said it would buy back HK$336 million (S$57.3 million) of shares.

The stock climbed as much as 4.2 per cent on Tuesday morning in Hong Kong. The company will pay HK$11.08 to HK$11.84 apiece for the shares, about 0.2 per cent of issued capital, it said in a filing to the exchange late Monday.

Evergrande's shares have seen big swings after investors were spooked by reports that the company disputed this week. The property firm is under close regulatory scrutiny as authorities issue a slew of measures to curtail risks in the sector. Evergrande is falling further behind its peers in meeting stricter Chinese borrowing limits, raising refinancing concerns.

"The volatility in Evergrande's share price is unlikely to decrease," said Castor Pang, an analyst at Core Pacific-Yamaichi International Hong Kong. "Evergrande's price has dropped a lot and that's helping with the rebound, but it's hard to say if it can last."

Evergrande's bonds also rose. Its 6.98 per cent yuan bond due 2023 jumped 6.4 per cent to 95.8 yuan as of 9.57am local time. Its 8.75 per cent dollar bond due 2025 climbed 1.1 cents on the dollar to 75 cents in Hong Kong, according to data compiled by Bloomberg. The note has fallen nine cents since late May.

In a statement on Monday, Evergrande said various "rumours", including that it was resorting to widespread price discounts, were false.

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Uncertainties for the industry still remain amid policy changes. China's Ministry of Land and Resources shifted the responsibility for collecting land sales revenue to the tax bureau on Friday, a development that Australia & New Zealand Banking Group analysts deemed negative for the property sector.

The People's Bank of China said in a response to a Bloomberg query on Friday that it would include commercial banks' investment in securities backed by residential mortgages in property-related loan exposure, a move that could limit growth of debt for builders.

"Evergrande's buyback may fail to ease liquidity concerns," said Kristy Hung, a Hong Kong-based analyst with Bloomberg Intelligence. The company "could face higher refinancing risks because the PBOC's broadening of its definition of banks' property exposure to include some investments in the sector may force them to trim loan exposure to developers further".

Evergrande's bond and stock selloff worsened last week after Caixin Media's WeNews reported that regulators were looking into its dealings with a banking unit. The China Banking and Insurance Regulatory Commission is examining more than 100 billion yuan (S$20.7 billion) of transactions between the developer and Shengjing Bank, WeNews said on May 27.

Shengjing Bank holds large amounts of bonds issued by Evergrande, WeNews reported, citing unspecified sources. Evergrande is the bank's biggest shareholder.

Evergrande said in its statement that its business with Shengjing Bank is in line with laws. The developer also said it has never delayed any repayment of loan principal or interest. It added that will arrange payment of a "very small amount" of commercial paper issued by some affiliates that hadn't been repaid on time.

In an effort to restore investor confidence, the company said last week that it would try to meet at least one of China's so-called three red lines - metrics limiting debt levels in the property sector - by the end of this month.

Investors are "still cautious about regulatory issues and the central government is still imposing tightening policies", Mr Pang said.

BLOOMBERG

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