Evergrande Said Discussing $2B Sale of Wanchai HQ to Yuexiu Amid Govt Pressure

Embattled mainland developer China Evergrande Group is in talks to sell its largest single property asset for around $2 billion, according to sources familiar with the discussions who spoke with Mingtiandi.

Yuexiu Property, a branch of the local government of Guangzhou, the city where Evergrande got its start, is said to be the potential buyer for the 26-storey China Evergrande Centre in Hong Kong’s Wanchai district, with the talks having first been reported by real estate information provider REDD.

The rumoured deal would value the 350,000 square foot (32,516 square metre) property on Gloucester Road at HK$44,520 per square foot. That figure would be about triple the HK$15,609 per square foot paid by an international consortium to acquire Swire Properties CityPlaza One in Quarry Bay district during November last year, and nearly 19 percent more than the record-breaking HK$36,232 per square foot that Evergrande had paid to acquire the property in 2015.

Local property analysts are interpreting the potential deal as a government-driven attempt to rescue Evergrande, which on Friday had pledged to lower its debt levels after having been reprimanded by China’s top financial regulators last week.

Pricey Trades in Wanchai

One veteran broker said the $2 billion figure for the 1985-vintage building is “frankly overpriced”, and described the deal as a kind of internal transfer within the mainland China community.

Inquiries from Mingtiandi to Yuexiu and Evergrande attempting to verify the transaction reports went unanswered at the time of publication. Should the transaction take place, it would be the largest sale of a single real estate asset in Hong Kong since CK Asset sold the Center on Queen’s Road in Central to a local consortium for HK$40.2 billion in 2017.

Evergrande had purchased what was then the MassMutual Tower from Joseph Lau’s Chinese Estates for HK$12.5 billion in November 2015, with that deal having set a record for the largest transaction of a single office building in Hong Kong at the time, as well as the most expensive office deal in the city on a per square foot basis.

With Evergrande having purchased the MassMutual Tower in a set of instalments over a six-year period, it would be on schedule to have paid off 100 percent of the purchase price by November this year.

Looking for Takers

The reported talks regarding the China Evergrande Centre are the latest accounts of attempted asset sales by Evergrande, with Reuters having reported on Friday that Evergrande was in talks with smartphone maker Xiaomi and Shenzhen state-backed investment firms on the potential sale of part of its 65 percent stake in the Evergrande NEV electric car unit. The unnamed sources cited by the agency said the talks were in an early stage and subject to changes.

Under pressure to raise cash, Evergrande revealed earlier this month that it was in talks to sell stakes in Evergrande NEV and in its Evergrande Property Services unit.

Mainland media reported on 13 August that developers China Vanke and Country Garden were walking away from discussions after considering the acquisition of stakes in the property services unit.

Evergrande may have received a respite from its debt woes recently, with Bloomberg reporting that three major creditors — China Minsheng Banking Corp, China Zheshang Bank and Shanghai Pudong Development Bank — had given the cash-strapped firm more time to repay maturing loans.

Solemn Vows to Regulators

With China Evergrande’s Hong Kong-listed shares on their way to losing 14 percent of their value last week, executives of the beleaguered developer were summoned by the mainland’s chief regulators on Thursday to give assurances that they would honour the group’s commitments.

The meeting came on the heels of a public statement issued by the regulators demanding that Evergrande sort out its financial woes and avoid disrupting China’s real estate market.

Amid rampant speculation that some form of state-led restructuring was in the works, Evergrande released a statement on Friday saying it would “fully implement the requirements” laid out at the meeting by officials from the People’s Bank of China and the China Banking and Insurance Regulatory Commission.

The world’s most indebted developer vowed to “earnestly fulfil the main responsibility of the enterprise” by ensuring the construction and completion of projects, refraining from disseminating false information and resolving debt risks, among other tasks.

Rare Rebuke

At least one analyst interpreted the regulators’ statement as “a strong warning” to the Shenzhen-based company led by billionaire chairman Xu Jiayin.

“We expect an acceleration in asset sales, introducing strategic investors and advancing negotiations with suppliers,” said Lucror Analytics credit analyst Chuanyi Zhou.

Earlier last week, news broke that Xu had stepped down from the chairmanship of Evergrande’s main property unit in China, Hengda Real Estate, fuelling speculation of broader changes at the group.

A report on the Sina news website quoted a person close to Evergrande as saying Xu’s exit from the post was normal because an effort to secure a mainland stock-market presence for the company had ended and the action did not involve changes in the specific management structure or equity.

Hengda had been the focus of a four-year-long attempt at a back-door listing in Shenzhen, a plan that eventually fizzled last November after the company failed to acquire necessary approvals.

Christopher Caillavet and Pimfha Chandhapradit provided editing and research for this story.