Opinion | Evergrande puzzles with buy-back on one hand, borrowing on the other
Evergrande’s spending may be a measure to boost confidence to help the sale of its own financial products and raise the share price
What kind of management pays more than HK$500 million to buy back its own shares while scrambling for the same amount through an expensive seven-month loan?
Evergrande Real Estate Group chairman Hui Ka-yan knows best. That puzzling example of financial management is exactly what the Guangzhou developer has been doing for the past week.
The firm is trying to raise 500 million yuan (HK$625 million) through a trust loan of seven-month maturity, according to an offering document issued by Zhongrong Trust.
"I wouldn't do such a short-term borrowing unless I'm desperate for cash," said the financial controller of a listed company. "The service charge is the same, regardless of the maturity."
Trust loans have been a major source of funding for Evergrande for the past two years. But the latest offering is the shortest maturity of its known trust lending so far.
Evergrande’s share price has outperformed both the Hang Seng Index and its rivals
It is also way below the market average. Increasing risk awareness drove the average down to 1.84 years in the first half of the year from 1.99 in the first half of last year.