Hopson Development will purchase a 51 percent stake in the property management division of China Evergrande Group for more than HK$20 billion ($2.6 billion), according to an account in mainland financial news site Cailian.com today, as a widely-expected restructuring of China’s second-largest developer continues to take shape.
Both China Evergrande Group and its Evergrande Property Services division halted trading this morning pending announcements, with the developer noting that news of a “major transaction” was pending. At the time of publication, shares in the two Evergrande units remained suspended, with Evergrande Property Services indicating in its notice to the Hong Kong stock exchange that trading was halting pursuant to an announcement which constitutes “a possible general offer for the shares of the Company.”
Hopson also halted trading in its shares, “pending the release of announcement(s) in relation to a major transaction of the Company under which the Company agreed to acquire the shares of a company (‘‘Target Company’’) listed on the Stock Exchange,” noting that the deal could also necessitate a mandatory offer for all of the shares in the target company.
Should the reported transaction move forward, it would provide fresh liquidity for China Evergrande Group, after it missed two US dollar bond payments last month which form a sliver of the group’s $300 billion in debt obligations.
Originally from Evergrande’s hometown of Guangzhou, as of 30 June this year, Hopson had cash and bank deposits on hand of HK$42.9 billion and a liability-to-asset ratio of 67 percent. This level of liquidity makes Evergrande Property Services an easy target after the company saw its market cap shrink by more than 70 percent this year to fall to HK$55.4 billion today. Since February of this year, the property management spin-off of China’s largest real estate developer saw its share price slide from HK$18.90 to HK$5.12 this week.
A report in Cailian’s sister publication, Jiemian.com, indicated that final details of the proposed transaction would be confirmed in the next few days. Inquiries by Mingtiandi to China Evergrande Group and Hopson Development remained unanswered at the time of publication.
Ranked as China’s 77th largest developer with RMB 297 billion ($46 billion) in contracted sales attributable to shareholders in 2020, Hopson took a step to internationalise its business in July this year when it hired former CapitaLand China chief executive Lucas Loh as its co-president, serving alongside fellow co-president Fan Zhang.
Loh and Fan serve under 32-year-old Hopson chair Chu Kut Yung, who took over the top spot at the company founded by her father, Chu Mang Ye, in January of last year. The younger Chu had previously served as vice chairman of Hopson for six years, during which time she was credited with expanding the firm’s technology investments.
Active in both the residential and commercial markets in mainland China, Hopson made its first overseas acquisition in 2019 when it purchased a stalled project at 131-141 East 47th Street in Manhattan for $113.5 million. Originally aiming to launch pre-sales this year, Hopson has since taken on a US partner and submitted new plans for the $320 million project last month.
Building Bond Pressure
The prospect of Hopson’s takeover of Evergrande Services today distracted investors from yet another debt failure by the property group on Sunday.
A US dollar bond for Jumbo Fortune Enterprises which matured on 3 October is guaranteed by Evergrande, according to a Bloomberg account citing informed sources, making payment on the $260 million debenture due today.
Evergrande missed its second offshore bond payment last Wednesday, when it failed to come up with $83.5 million in interest due to investors. On that same day Evergrande announced an agreement to sell a $1.5 billion stake in Shengjing Bank to a state-owned asset management company.
The acquisition of Evergrande Property Services could make the management firm a unit of Hopson less than one year after it had listed on the Hong Kong exchange.
Evergrande Property Services had received a tepid reception from investors for its initial public offering in November last year, which raised $1.8 billion and valued the spinoff at $12.3 billion.
Since that time shares in Evergrande’s Hong Kong-listed units have been losing fans as the depth of its financial crisis frighten off even long-term backers.
Chinese Estates and the family of its leading man, Joseph Lau, last week said that it had sold off 13 percent of its stake in China Evergrande Group, and was planning to potentially dispose of its entire 5.66 percent holding in the developer in the months ahead.
With electric car division China Evergrande New Energy Vehicle Group having reportedly missed payroll last month, Charles Chan Kwok-keung’s China Strategic Holdings said on 21 September that it planned to dispose of up to 133.6 million shares in the electric car maker.