Two companies backed by local governments in Guangdong province have stepped in to provide a lifeline for beleaguered developer China Evergrande Group after a key strategic investor demanded an exit, as it was informed by some sources close to the issue..
Firms owned by the city governments of Shenzhen and Guangzhou will buy equity worth 30 billion yuan ($4.6 billion) from existing investors in Henga Real Estate, a unit that holds Evergrande’s main property assets in China. The buyers are Shenzhen Talents Housing Group Co. and Guangzhou City Investment Company Ltd., while the sellers include a consortium led by Shandong Hi Speed Group Co, Hengda’s largest strategic investor.
Shenzhen-based Evergrande has come under intense scrutiny after fears of a cash crunch triggered a sell-off in the company’s bonds and shares in late September. The world’s most-indebted developer has since raised cash through asset sales and is seeking to list its property management services unit in Hong Kong, easing concern about its ability to service near-term debt. Still, doubts have lingered about the company’s long-term financial strength.
A particular sticking point has been its ability to reach deals with strategic investors who had the right to demand repayment of as much as 130 billion yuan if Evergrande didn’t win approval for a backdoor listing in China by Jan. 31. Evergrande scrapped those plans earlier this month after a majority of its strategic investors agreed not to ask for repayment.
Investors with equity interests of 125.7 billion yuan, including the two new state-owned firms, have entered into supplemental agreements to hold their stake as ordinary shares, the developer said in a statement on Sunday
