China Evergrande raises a further US$9 billion to cut debt ahead of Shenzhen listing
Consumer electronics chain Suning Electrical Appliances and state-backed Shandong Highway lead funding of company’s Hengda Real Estate unit
China Evergrande Group, the country’s largest property developer by sales, has raised a further 60 billion yuan (US$9 billion) from strategic investors as it looks to continue to reduce debt ahead of the listing of its property arm, Hengda Real Estate, on the Shenzhen Stock Exchange.
The latest funding, the third round this year, has brought the total amount the company has raised to 129.5 billion yuan through the sale of a total stake of 36.54 per cent of Hengda, according to a company statement on Monday.
Evergrande, which is based in the southern Guangdong province and listed in Hong Kong, has been planning to move Hengda to the Shenzhen exchange via a back-door listing since last October. Stocks on the Shenzhen bourse are trading at 27 times earnings, higher than the nine times on the Hang Seng China Enterprises Index.
“Both the scale of fundraising and the valuation are a bit over our expectations, which is positive for the company,” said Toni Ho, an analyst with Rhb Osk Securities Hong Kong.
Evergrande said that with the latest funding, its debt ratio could fall by a further 40 per cent from the 240 per cent at the time of its interim results in June.
The biggest investors in the fresh round were Suning Electrical Appliances Group, China’s largest consumer electronics chain, and state-backed Shandong Highway Group, which each invested 20 billion yuan.
Other investors included Shenzhen Amer International, Jiayu Vehicle Accessories Ningxia, Guangzhou Yehoo Investment and Ding Xiang Sichuan Equity Investment Fund. The combined 60 billion investment will give the six companies a total 14.11 per cent interest in Hengda.
The latest investment has lifted the valuation of Evergrande’s real estate business to a record 425 billion yuan, a 35 per cent premium to Evergrande’s market value of 315 billion yuan by November 6, according to calculations by the South China Morning Post.
In August, Evergrande’s vice-chairman and chief executive said Xia Haijun said the company will submit the A-share listing application to the stock regulator after bringing in the third round of investors.
While the listing application may happen soon, Rhb Osk’s Ho said the actual Shenzhen listing is not likely to be completed by the end of March, when the company releases its annual result.
“There are still a lot of uncertainties in returning to A shares, given the current regulatory environment and slow IPO process,” Ho said.
But he added that Evergrande’s active introduction of investors has already paid off by sending its shares shooting up 500 per cent this year to become one of the best performing China property stocks on the Hang Seng Index.
This in turn has made Evergrande chairman Hui Ka-yan China’s richest man, with assets worth US$43 billion.
Evergrande shares dropped 3.3 per cent in Hong Kong on Monday to HK$28.25.