Mergers & Acquisitions

China property

Evergrande sells Hengda stake, valuing unit at 300 billion yuan

China’s largest property developer has raised 70 billion yuan, giving its Hengda unit a valuation exceeding 300 billion yuan

PUBLISHED : Thursday, 01 June, 2017, 11:30am
UPDATED : Thursday, 01 June, 2017, 10:57pm

China Evergrande Group, the country’s largest property developer by sales, has raised 39.5 billion yuan (US$5.78 billion) in a second round of funding this year, after selling a stake in one of its core subsidiaries to a group of 13 investors, ahead of the relocation of its listing status to the Shenzhen Stock Exchange.

Combined with the first stake sale in January, Evergrande has raised a total of 70 billion yuan through selling 26.12 per cent of its Hengda Real Estate subsidiary, according to a stock exchange filing.

Evergrande was planning to list its property assets on the Shenzhen exchange, the developer said in October, where stocks were trading at 26 times earnings, higher than the 8 times on the Hang Seng China Enterprises Index. Evergrande planned to inject its Hengda assets into Shenzhen Real Estate in return for shares, which will make Evergrande’s Kailong Real Estate unit the controlling shareholder of Shenzhen Real Estate.

The plan would reduce Hengda’s debt, Evergrande said.

“The proposed reorganisation will enable the company to effectively list the [company’s] real estate related assets on the Shenzhen Stock Exchange A-share market,” according to its statement.

Evergrande seeks higher valuation, capital in Shenzhen via back door listing

The plan boosted Evergrande’s shares by as much as 8.6 per cent to an intraday high of HK$15.18, before closing the day at HK$14.32.

The company’s share price spiked more than 80 per cent in May, notching its seventh straight record close on Monday, on optimism that the company would complete its Shenzhen listing soon.

The latest funding round, based on the 39.5 billion yuan for a 12.96 per cent stake, gives Hengda a market value of 304.7 billion yuan.

Hengda conducts residential property development and management. Kailong originally held 100 per cent of the business. Via Kailong, Evergrande’s holding in Hendga has now been cut to 73.88 per cent.

Similar to the first round of investment, there is an undertaking that the net profit of Hengda for the three financial years through 2019 shall not be less than 24.3 billion yuan, 30.8 billion yuan and 33.7 billion yuan, respectively. Hengda will pay at least 68 per cent of its net profit to its shareholders.

Suzhou Industrial Park Ruican Investment Enterprise was the largest investor involved in the second round of fundraising, buying up 2.43 per cent of the company.

Shum Yip Group, wholly owned by Shenzhen State Assets Supervision and Administration Commission, bought 2.05 per cent, while Shenzhen Jiancheng Investment purchased 1.31 per cent of the business.

Shenzhen Baoxin Investment, controlled by Gu Shaoming, the controlling shareholder of Shenzhen-listed Baoying Group, bought 1.87 per cent, as did Jiangxi Huada Property Group and Shenzhen Qixiang Investment.

The rest of the investors took between 0.37 and 1.12 per cent of Hengda.

Morgan Stanley expects Evergrande’s net gearing ratio to drop to 196 per cent by the end of 2017 from 432 per cent as of the end of 2016, helped by the two rounds introduction of strategic investors.

After the spin-off, the Hong Kong listed entity will control its culture, tourism, internet and finance units.