China debt: Evergrande’s magnate Hui Ka-yan and Chinese Estates’ founder Joseph Lau through the years

Hong Kong’s property tycoon Joseph Lau Luen-hung is one of the closest business allies of the Chinese real estate magnate Hui Ka-yan, in a friendship and alliance forged through weekly card games going back more than a decade. Lau and his family-controlled Chinese Estates Holdings Limited had been involved either as a buyer, or the seller, in almost every significant transaction by China Evergrande Group, ever since Hui listed the Shenzhen property company for HK$6.5 billion in Hong Kong in 2009. Here’s a timeline of the deals between the two tycoons, their families and their companies over the years: November 2009: Chinese Estates, then chaired by Lau, bought US$50 million of Evergrande’s shares in Hong Kong through a subsidiary called Sun Power Investments. That made Lau the sole cornerstone investor in Evergrande’s initial public offering (IPO), making up roughly 6 per cent of the HK$6.5 billion raised. April 2010: Evergrande issued US$600 million of notes with 13 per cent yield to Chinese Estates and Lau, US$250 million of which was sold directly to Lau, after a raft of market-cooling measures issued by the Chinese government’s State Council, which tightened liquidity and crimped sales prospects of Chinese developers. Evergrande’s woes cause other Chinese developers to feel the squeeze June 2011: Evergrande sold 49 per cent of a mixed development project in the Jiangsu provincial city of Qidong, near Nantong, to Chinese Estates for US$500 million. The site was approved for development into a residential, business and resort project with a total gross floor area of 1.58 million square metres (17 million sq ft). Chinese Estates sold the project for exactly the same amount 15 months later in September 2012 to an investment fund managed by the Sparx Group in September 2012, booking a loss of HK$10.5 million on the transaction. March 2014: Lau was sentenced to five years and three months in jail by a Macau court for his role in “planning” a bribes-for-land racket involving the most corrupt public official ever brought to justice in the history of the former Portuguese enclave. Lau’s appeal against his conviction was rejected in January 2016. Evergrande is not China’s Lehman moment, but it spells trouble for growth July 2015: Chinese Estates sold three mixed development projects in the Sichuan provincial capital of Chengdu to Evergrande for HK$6.5 billion. In October 2015, Chinese Estates sold 25 per cent of its residential property in Chongqing to Evergrande for HK$1.75 billion. In November, Chinese Estates put its 26-storey office tower, then called the Mass Mutual Tower, at Hong Kong’s Wan Chai harbourfront up for sale. Evergrande swooped in to buy it for a record HK$12.5 billion, paying more than the prevailing market price in a deal that JPMorgan’s analyst described as “another example of immature capital management” by Evergrande, in its note to investors. Evergrande would pay for its purchase in eight instalments over six years, culminating in 2021. The building was renamed the Evergrande Centre after the change in ownership, but Chinese Estates’ head office remains on the tower’s 26th floor. 2016: Evergrande spent HK$17 billion to build up a 27.2 per cent stake in Shengjing Bank in April 2016, based in northeastern China’s Liaoning province and publicly traded in Hong Kong, three months after receiving the Chinese bank regulator’s approval to establish a consumer finance arm. The stake breached the Hong Kong stock exchange’s minimum free float for Shengjing, prompting Evergrande to trim its holdings a month later. Even allies abandon world’s most indebted developer Evergrande On May 6, Evergrande sold 577 million Shengjing Bank shares for HK$6.93 billion to Chinese Estates’ Great Captain Limited unit. Ten months later in March 2017, the same stake was sold to Lau’s wife Chan Hoi-wan for HK$7 billion. The sale, inclusive of consolidated earnings from the bank, generated a one-time gain of HK$2.24 billion for Chinese Estates, which was then used as a special payout to shareholders, giving Chan – acting as a trustee for her two children – HK$1.12 billion in dividends. Chinese Estates’ chairman Lau Ming-wai, the son of the elder magnate, would get HK$560 million in special dividends. 2017: Chinese Estates topped up its holdings in Evergrande, buying 579.9 million shares for HK$6.9 billion between April and July in its first addition since the Chinese company’s 2009 listing. 2018: From April 2017 until August 2018, Chinese Estates bought another 857.5 million shares of Evergrande for a total of HK$1.2 billion. Lau’s wife Chan also added her holdings, buying 315.8 million shares, giving her 9 per cent of Evergrande as of August 13, 2018. 2019: Lau started to buy Evergrande’s high-yield bonds, according to reports by local media. Chinese Estates’ holdings of Evergrande’s shares and five bonds totalled HK$20 billion, or 41 per cent of the Hong Kong company’s total assets, according to its 2019 annual report. 2020: The 2020 revenue of Chinese Estates, which had not sold a single property since 2018, more than doubled from a year earlier to HK$3 billion, owing to HK$1.97 billion in dividend payments from its holdings of Evergrande’s shares. It said that its securities investments in Evergrande including listed shares and six bonds amounted to HK$13.4 billion, or 36 per cent of total assets. 2021: Lau and Chan paid HK$3 billion in January for 109 million shares of Evergrande’s Hong Kong-listed electric car unit, among six cornerstone investors in the unit’s top-up fundraising. The unit sold additional shares at HK$40.92 in May, raising HK$10.64 billion in Hong Kong. Shares in the company, which has yet to produce a single electric car, fell to HK$2.90 on Monday . Chinese Estates owned 860 million Evergrande shares, and seven bonds sold by the company as of June, valued at HK$9.23 billion, or 27 per cent of the company’s total assets. Chinese Estates reported HK$4.1 billion of unrealised loss on the fair value change in Evergrande’s stake in August, as it reported an interim loss of HK$35.5 billion in the first half. In 2020, the company’s paper loss from dabbling in Evergrande’s shares amounted to HK$5.76 billion. In late July, Evergrande unexpectedly reneged on its a July 15 announcement to make a special dividend payout, in a surprise stock exchange filing that cited “the current market environment, the rights of the shareholders and creditors, and the long-term development of the various businesses under the group.” The slump in the company’s share price and the volume of their transactions have picked up since then, with the stock falling 62 per cent since July 27. Another member of the Lau family had also been exposed to Evergrande. Thomas Lau, the younger brother of Joseph, and chairman of Lifestyle International that operates the Sogo department store in Hong Kong, holds two Evergrande bonds, in addition to HK$500 million worth of shares of Evergrande Property Services Group, also listed in Hong Kong. Total investments in Evergrande’s bonds and shares made up about 7 per cent of Lifestyle International’s total assets at the end of June, according to the company’s interim financial report. In September, Lau and his wife cut 138 million Evergrande shares they held several times in the past month, according to exchange filings. After the long position, Lau and Chan reduced their holdings in the Shenzhen-based developer to 7.96 per cent, second only to Hui’s controlling stake of 70.7 per cent.