China Evergrande pre-empts US$19 billion cash crunch as investors drop repayment option in Shenzhen reorganisation plan
- Most investors who poured in 130 billion yuan into Hengda unit have agreed to drop a repayment option in much-delayed Shenzhen deal
- New terms should ease concerns about the group’s liquidity, according to CGS-CIMB analyst
The company said most investors owning 36.5 per cent in its key unit called Hengda Real Estate will maintain their holdings for an undisclosed period of time, according to an exchange filing late Tuesday. They agreed to not require the company to buy back their stakes, it added.
More than 20 builders, private equity firms, venture capitalists and money managers poured 130 billion yuan over three rounds of funding in 2017 to help Hengda repay its debt and buy land, in exchange for the equity stakes and promise of big dividends.
The stock slumped 9.5 per cent on Friday to HK$13.78 in Hong Kong, bringing the decline this year to 36 per cent. It has since risen by almost 20 per cent this week to HK$16.50. Evergrande had 835.5 billion yuan of debt on June 30, according to most-recent published accounts.
“This latest agreement should solve the liquidity concern faced by Evergrande, if in case the group’s restructuring could not go through successfully,” said Raymond Cheng, an analyst at CGS-CIMB Securities. “This outcome is better than if Evergrande were to renegotiate with investors to extend the terms for another year, in our view.”
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In the Tuesday filing, Evergrande said investors who contributed 86.3 billion to the cash infusion in Hengda have agreed to drop their buy-back option. Another group with 15.5 billion yuan of stake have also consented subject approvals, while negotiations with the rest were continuing, it added.
Investors who put in 130 billion yuan into Hengda include Citic Trust Co, Suning Electrical Appliances, developer Shum Yip Group, Zhongrong International Trust and Shandong Highway group, based on stock exchange filings. Some of them had the options to require Hengda or its billionaire shareholder and chairman Hui Ka-yan to buy them back at cost.
“Under the supplemental agreements, the investors agreed not to require the repurchase of their equity interests in Hengda and will continue to hold their interests in Hengda, with their percentage of equity interests remaining unchanged,” the company said.
In a separate filing on Tuesday, Evergrande said it has submitted an application to list its 71.9 per cent-owned property management and services business on the Hong Kong stock exchange via a global stock offering, creating a new source of cash.
Much of the volume rests on the group’s expansive reach in the mainland property market. Evergrande owns more than 870 projects in at least 280 cities across all provinces and regions.
Hengda alone had a net asset value of 188 billion yuan on June 30, 2017, having risen from 88 billion yuan at the end of 2016, according to company filings. Under its reorganisation plan with Shenzhen SEZ, it agreed to deliver no less than 50 billion yuan in net profit in 2018, 55 billion yuan in 2019 and 60 billion yuan in 2020.
