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An exhibition booth showcasing China Fortune Land Development’s projects. The developer has become a financial burden on its major shareholders as it struggles to service its debt. Photo: Handout

Ping An Insurance becomes top holder of cash-strapped China Fortune Land, raising survival hopes

  • China Holdings has been relegated to second largest owner of cash-strapped developer after trimming its stake in a debt restructuring exercise
  • Ping An Insurance is seen as a passive investor though the stake has become a drag to earnings
Ping An Insurance (Group), China’s largest insurer by market value, has become the largest shareholder of China Fortune Land Development, raising hopes the developer will survive its liquidity crisis following a debt default.

The group overtook China Holdings as the single largest holder of the cash-strapped developer after the latter trimmed its ownership to 24.92 per cent from 25.82 per cent in a debt restructuring exercise, according to a Shanghai Stock Exchange filing late Thursday. The Ping An group and its concerted parties own 25.19 per cent of the developer.

“So far, it has only symbolic value as Ping An is China Fortune’s No 1 investor,” said Ivan Li, fund manager at Shanghai-based Loyal Wealth Management. “Investors may hope Ping An will play a bigger role in rescuing the developer. The outlook remains unclear.”

China Fortune climbed for a fourth day, capping a two-week rally of 4.2 per cent to 4.18 yuan. The stock has slumped 68 per cent this year.

The investment in China Fortune Land has become a burden for the insurer as the industrial estate operator and developer struggled to service its debt, having accumulated 81.57 billion yuan (US$12.7 billion) in overdue interest and principal on bank loans and bonds at the end of July.

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The developer failed to pay more than 11 billion yuan of debt in February, including US$530 million of bonds, becoming the first victim of Beijing’s tough “three red lines” measures to rein in excessive leverage among the nation’s developers and prevent a financial shock in the economy.
Ping An Insurance reported a 15.5 per cent slide in net profit to 58 billion yuan in the first half, due to a 35.9 billion yuan provision for impairment losses and diminution in the value of its stake in the developer. The losses have also prompted a query from regulators over its investments in real estate assets.

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Despite the stake reduction, China Holdings will remain China Fortune’s controlling shareholder with its boss Wang Wenxue as its actual controller, the exchange filing said. Ping An, which has two of the nine board seats, has no intention to be a controlling owner, it added.

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The “three red lines” framework sets ceilings on debt-to-asset ratio, net debt-to-equity and short-term borrowings to cash reserves ratio, failing which they are cut off from bank financing. The move has squeezed some developers including China Evergrande.

Lin Zhong, chairman of Shanghai-based developer Cifi Holdings said in August that the company would pivot its approach from large to mid-sized projects, thus cutting back spending on land purchases. It was time to take a moderate stance amid market curbs, he added.

“We also plan to accelerate the development process to boost cash flow and maintain a solid cash position,” he said. “To adapt to the tightening policy environment, Cifi does not look to buy land plots that take a long period of time to develop because they soak up a big sum of funds.”

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