Unsuccessful initial public offering candidate Evergrande Real Estate, a Guangzhou-based developer that dropped a plan to raise US$2.12 billion in Hong Kong, hopes to raise US$400 million from private equity firms and hedge funds via a private share placement, sources said.
A source close to Evergrande said the firm had held talks with several potential suitors for a stake sale to attract new funding for its existing project developments.
'They were preparing materials for a conference call last week to explain their new plan,' said another source.
Evergrande failed to attract sufficient orders from institutional and retail investors for its planned offering early this month.
The listing had been expected to be the second-largest fundraising exercise in Hong Kong and the third-largest in Asia this year.
That is causing problems for investors that had planned to liquidate some of their holdings in the company.
'They're looking for equity investors with a longer time horizon to take out some of the pre-offering investors,' a source said. 'They're looking at global private equity groups - Kohlberg Kravis Roberts, TPG, Bain Capital - that kind of name and hedge funds with heavy cash positions.'
Evergrande attracted US$400 million in investment from Merrill Lynch, Deutsche Bank and Temasek Holdings, the investment arm of the Singapore government, in the run up to the planned share offering.
The company, in a second and third round of financing, raised a further US$500 million from another group of investors in the form of a pre-public offer loan facility, including Credit Suisse and a consortium of hedge fund houses.
The five-year US$500 million loan pays a pre-public offer coupon of 450 basis points over Libor and would rise to 550 basis points over Libor six months before completion of the share offer.
'It is a really heavy financial burden,' said a banker, citing two mainland property developers, Singapore-listed Yanlord Land and Hong Kong-listed Agile Property Holdings that are paying 200 basis points over Libor on two separate loans they borrowed last year.
Many hedge funds are sitting on cash hoards as they ride out a volatile stock market and Evergrande is hoping they are willing to put that idle money to work with them.
Merrill Lynch, Goldman Sachs and Credit Suisse were hired to arrange the share offer and are also involved in seeking out the current round of investors, a source said.
Still, the firm is in urgent need of cash as it planned to spend 30 billion yuan (HK$33.3 billion) in construction costs for existing projects this year while sources said next year would be another high capital spending year as the firm will need to put in 42 billion yuan.
The firm has one of the largest land banks among listed mainland property developers with a gross floor area of 45.8 million square metres, of which 30.5 million sq metres has been approved for land use rights certification.
Evergrande now seeks US$400m from private equity and hedge funds
The amount the property developer originally sought to raise from aborted offer, in US$2.12b