Evergrande Services Unit Kicks Off Downsized $2B Hong Kong IPO

Evergrande Property Services Group Ltd has announced the details of its proposed listing on the Hong Kong stock exchange, with the public offering to take place from Monday to Thursday this week.

The company, a property management services spin-off of mainland developer China Evergrande, plans to offer more than 1.62 billion shares in the price range of HK$8.50 to HK$9.75 ($1.10 to $1.26). A pricing at the high end of the range would make the IPO worth more than $2 billion.

Assuming an offer price at the midpoint of HK$9.13 a share, Evergrande Property estimates the total proceeds at HK$14.8 billion ($1.91 billion) if an over-allotment option is not exercised.

The fundraising target signals lower expectations after observers earlier this month predicted an IPO of as much as $3 billion.

Searching High and Low for Cash

Evergrande Property’s big week comes as its Shenzhen-based parent firm, China’s largest developer and the world’s most indebted, seeks to shore up its balance sheet and raise cash amid a government crackdown on excess leverage among mainland developers.

A mid-October share sale by Hong Kong-listed Evergrande fetched $555 million, a far cry from the more than $1 billion the group had envisioned. Then in early November, a four-year-long plan for a back-door listing in Shenzhen evaporated as most of the company’s strategic investors agreed not to demand repayment.

Those fizzled attempts came on the heels of a September episode in which Evergrande denied reports that it had sent a letter to the Guangdong provincial government pleading for a bailout. Within weeks, China Minsheng Banking Corporation and other key creditors were reducing their exposure to the company after regulators urged Minsheng Bank to improve its oversight of Evergrande risk over concerns that the bank’s short-term loans lacked sufficient collateral, The Standard reported.

Local Government Investors to the Rescue

On Sunday, a Bloomberg report said two companies backed by local governments in Guangdong province had stepped in to provide a financial lifeline for Evergrande after a key strategic investor demanded an exit as the developer failed to achieve its Shenzhen listing.

Citing a person familiar with the reported investment plan, Bloomberg’s account indicated that firms owned by the city governments of Shenzhen and Guangzhou will buy equity worth RMB 30 billion ($4.6 billion) from existing investors in Hengda Real Estate. Hengda holds Evergrande’s main property assets in China and had been designated as the company’s prospective public entity in the failed plan for a public listing.

The buyers were identified as Shenzhen Talents Housing Group Co and Guangzhou City Investment Company Ltd, while the sellers would include a consortium led by Shandong Hi-Speed Group Co, Hengda’s largest strategic investor.

Money-Spinning Machine

Evergrande hopes to put worries about its debt-servicing ability to rest with a successful spin-off of its property management services arm.

As of June, Evergrande Property was contracted to provide property management and value-added services at 1,354 projects in over 280 cities across 22 provinces, five autonomous regions, four municipalities and Hong Kong. The company in mid-November reported that it had signed contracts to manage properties covering 543.4 million square metres (5.85 billion square feet) in gross floor area and had total GFA under management of 278.9 million square metres.

Evergrande Property’s net profit rose from RMB 106.6 million in 2017 to RMB 930.5 million in 2019 and reached RMB 1.14 billion in the first six months of 2020, according to property information provider China Index Academy.

The sponsors of this week’s offering include Huatai Financial Holdings (Hong Kong) Ltd, UBS, ABC International, CCB International, CLSA and Haitong International.