China Property

Languishing in Hong Kong, property giant Evergrande taps share market in China

PUBLISHED : Thursday, 14 April, 2016, 8:46pm
UPDATED : Thursday, 14 April, 2016, 9:18pm

Hong Kong-listed Evergrande Real Estate, China’s second-largest residential developer has bought a stake in a Shanghai-listed developer and is circling a Shenzhen-listed real estate firm, in signs that the Chinese property major is exploring options in the country’s A-share market.

In a statement filed to the Shanghai Stock Exchange on Thursday, Langfang Development, a Langfang city-based state-owned developer, said Evergrande had acquired 5 per cent of its stake for 291 million yuan (HK$348 million).

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Meanwhile, mainland property news portal reported, citing several sources, that Evergrande is taking over control of another state-backed developer, China Calxon Group, which is listed in Shenzhen.

Alan Jin, property analyst at Mizuho Securities, said China’s A-share platform is attractive for Evergrande as its brand has greater resonance among mainland Chinese investors than in Hong Kong.

“It might seek a back-door listing,” Jin said.

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Hong Kong-listed mainland Chinese developers are increasingly taking measures to seek listing at home in view of the low valuation in Hong Kong. Dalian Wanda Commercial Properties last month proposed to the Hong Kong Stock Exchange a privatisation plan. The company is waiting for the Chinese regulator’s approval to list in the A-share market.

Offshore investors have been concerned about debt-ridden Evergrande’s growing tendency to stray from its core property business. It has in recent years branched out to several unrelated sectors, trying everything from selling water to operating hospitals.

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The Evergrande stock has lost nearly 16 per cent so far this year, with a price-earnings (P/E) ratio of just 5. That compares with an average P/E of 10 on Hong Kong’s main board.

According to the statement issued by Zhejiang-based China Calxon, the company plans to sell a total of 52.78 per cent of its equity for at least 3.79 yuan per share, taking the transaction value over 3.6 billion yuan.

But Mizuho’s Jin said it remains unclear if a private company like Evergrande can become the major shareholder of state-owned Calxon.

Evergrande’s spokesman declined to comment on reports of its Calxon acquisition.

Evergrande’s share rose 0.9 per cent to HK$5.74 in Hong Kong on Thursday.