Evergrande’s Hong Kong trophy became a white elephant
China Evergrande Group is marketing its Hong Kong headquarters at a valuation of around HK$9 billion ($1.15 billion), with Li Ka-shing’s CK Asset Holdings having placed a bid for the Wan Chai office tower, according to sources who spoke with Mingtiandi.
Should the tender, which is managed by brokerage firm Cushman & Wakefield, result in a sale at the target valuation, it would price the 345,000 square foot (32,051 square metre) grade A office building at about 28 percent less than the HK$12.5 billion which Evergrande had paid to acquire the asset in 2015.
The tender, which ended on Thursday is the latest move by Evergrande to raise cash to pay down debts, as the developer failed to meet a promised 31 July deadline for restructuring $300 billion in obligations.
On Sunday, the firm revealed that it had lost an $1.1 billion arbitration case without naming a counterpart or the source of the aribitration claim, other than to reference an unpaid debt.
Record-Setting White Elephant
Evergrande, which is run by high profile billionaire Xu Jiayin (also known by his Cantonese name Hui Ka-yan), set a record for the most expensive purchase of an office building in Hong Kong when it acquired what was then the Mass Mutual Tower in Wan Chai from Joseph Lau’s Chinese Estates in 2015.
Could Evergrande boss Xu Jiayin
Analysts at JP Morgan at the time calculated that the deal was done at a 1.7 percent initial yield, stating in a note to investors that the transaction was “another example of immature capital management” by Evergrande.
Last August, Yuexiu Property, a branch of the local government of Guangzhou, was reported to be interested in the China Evergrande Centre, but the deal fell through. Evergrande reportedly asked for $2 billion (or HK$15.6 billion) for the 1985-vintage building, and the price was reduced to HK$10.5 billion after negotiation. But Yuexiu later walked out of the deal due to concerns with Evergrande’s increasing indebtedness.
The nearly 30 percent discount compared with the building’s purchase price reflects Evergrande’s dire financial situation and a weak office market plagued by Covid-19, according to analysts.
Selling in a Down Market
A report by the Hong Kong Economic Times said the building on Gloucester Road is only 80 percent occupied, with insurers and others as tenants on floors not used by the developer.
Office vacancy has remained high in Hong Kong over the past three months, standing at 9.9 percent in June compared with 9.8 percent at the end of March, according to a report by Savills this month. In Wan Chai, the vacancy rate has almost doubled compared with April 2020.
Evergrande said in a Hong Kong exchange filing in June that it was on track to deliver a preliminary restructuring plan by the end of July, but on Friday issued a statement saying that it would work to deliver a detailed plan by the end of this year.
The company has yet to release its 2021 financial results, and the trading of its shares, as well as the shares of its Hong Kong-listed property management and electric vehicle units, has been suspended since March.
The heavily indebted developer is also fighting a winding-up petition filed late last month by an investor in the developer’s Fangchebao online platform. Evergrande vowed to “oppose the petition vigorously”, and reassured in a Hong Kong stock filing that it does not expect that the petition will impact the company’s restructuring plans or timetable.
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