Evergrande sealed a deal last week with investors that waived their right to force a $13b repayment by the property firm.
Hui Ka Yan, the rags to riches billionaire who runs China’s most indebted developer, skirted his latest crisis in much the same way he always has: with help from wealthy friends and a government fearful of financial instability.
Hui’s China Evergrande Group sealed a deal last week with a group of investors that waived their right to force a $13 billion repayment by the property firm, avoiding a potential default that would have sent shock waves across financial markets in China and beyond.
The accord provides a much-needed reprieve for Evergrande, though with $120 billion in debt — and at least $5.8 billion maturing in the next two months alone — China’s largest developer by revenue isn’t out of the woods yet. The firm still needs to drastically pare debt and sell assets, or analysts say it risks lurching back into another credit crunch.
The group photo taken Sept. 29 in Beijing to announce the agreement, with Hui standing in the middle of 35 smiling and clapping strategic investors, belies just how close the tycoon and his firm had been to the brink.
With the January payment deadline approaching, Hui and his executives went to work to bring the investors on board, tapping his billionaire friends and industry contacts, while turning to local governments for support to avert a crisis, according to people familiar with the efforts.
Evergrande sent a letter to the provincial government of Guangdong in August, warning officials that the payments could cause a liquidity crisis and potentially lead to cross defaults in the broader financial sector. News of the plea for help emerged on Sept. 24, sending Evergrande’s stock and bonds tumbling even as the company dismissed the concerns as based on rumors and “fabricated” documents.
Guangdong and the city of Shenzhen, where Evergrande is based, stepped in to help stabilize the situation, according to people familiar with the plans who asked not to be identified discussing private matters. The governments have a lot at stake with Evergrande, the third-largest company in the province by revenue in 2018.
Officials in Shenzhen backed Hui’s efforts to bring the investors on board, while Hui made at least one of these investor calls himself, the people said. Under the terms of a 2017 agreement, the investors have the right to demand repayment of 130 billion yuan ($19 billion) unless the company gets a listing on the Shenzhen stock exchange by Jan. 31. Some analysts doubt Evergrande will get approval as national policymakers restrict funding options for developers to cool property market speculation.
Evergrande didn’t immediately reply to an inquiry seeking comment on a public holiday Friday. Calls to the media offices of Guangdong and Shenzhen governments weren’t answered.
One of the biggest investor targets was Suning Appliance Group. The retailer was the second-largest holder, with 20 billion yuan at stake, and had made it clear it would demand repayment to cover its own debt.
Yet like many of these investors, Suning is an Evergrande supplier, so a collapse could have ripple effects on their business as well. Another backer, Guangtian Holdings, counts on Evergrande for 47% of revenue at its main unit, while an arm of the interior design firm even invests in Hui’s soccer club in Guangzhou.
Hui, 61, who has a knack for aligning with the priorities of the Communist Party, also may have benefited from Beijing’s desire for a quick resolution. With the eight-day “golden week” national holiday approaching on Oct. 1, regulators were anxious to avoid an Evergrande meltdown in global markets while China was closed, one of the people said. The developer has international exposure through its $27 billion in offshore dollar bonds, and its listing on the Hong Kong stock exchange.
Beijing would also have wanted to avert any distractions ahead of its Central Committee meeting at the end of October when the Communist Party is set to lay out its next five-year plan, and draw up a blueprint that runs through 2035.
As a result, Evergrande’s plight reached the highest levels in Beijing. The Chinese cabinet and its financial stability committee, chaired by Vice Premier Liu He, discussed the company without making any decisions on whether to intervene, the people said. Some regulators considered options such as directing state-owned companies to take stakes or giving the company a green light for a listing of its electric-vehicle unit, one of the people said.
As Evergrande’s assets swooned last month, Hui also got some help from his longtime backers. Among them was an investment company…
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