China Evergrande has sold off its remaining stakes in four real estate projects to state-controlled companies, allowing the world’s most indebted developer to recover RMB 1.95 billion ($310 million) of its capital contribution and settle liabilities in excess of RMB 7 billion.
The Shenzhen-based group will transfer its 10 percent interest in Evergrande Daishan Garden, a residential project in Chongqing, and its 9.87 percent interest in Dongguan Evergrande Yuelong Terrace, a residential project in the Guangdong provincial city of Dongguan, to China Everbright Trust.
As a result, the trust — which is controlled by China Everbright Group, itself held by China’s Ministry of Finance and state investment firm Central Huijin — will take full ownership of the Chongqing and Dongguan projects.
In addition, Evergrande will transfer 9.23 percent of its interest in a Foshan residential project and 10.97 percent of its interest in the Fairyland theme park in Guangzhou’s Nansha district to Minmetals Trust, held by state-controlled Minmetals Capital, the State-owned Assets Supervision and Administration Commission of Qinghai province and the Industry and Information Technology Bureau of Xining municipality.
State Firms Take Centre Stage
The disposals will ensure the normal operation of the project companies, ensure on-time delivery of properties and protect the interests of creditors and homebuyers, Evergrande chairman Xu Jiayin said in a Friday afternoon filing with the Hong Kong stock exchange.
The total consideration for the disposal of equity interest and rights to the debts under the Everbright Trust is RMB 1.03 billion, with Evergrande expecting to recover RMB 1.03 billion of its capital contribution and settle liabilities concerning the projects of RMB 2.77 billion.
For the Minmetals Trust, the total consideration for the disposal of equity interest and rights to the debts is RMB 1.1 billion, with Evergrande expecting to recover RMB 920 million of its capital contribution and settle liabilities concerning the projects of RMB 4.24 billion. Evergrande will continue to hold a 39.77 percent interest in the Foshan development and a 40.03 interest in the Fairyland theme park through the trust arrangement.
The developer, which has an estimated $300 billion in liabilities, did not clarify how the disposals would enable it to settle the roughly RMB 7.01 billion in liabilities attached to the four projects.
Evergrande expects to record a gain of RMB 15.9 million on the disposals, being the difference between the total consideration in respect of the equity interests to be disposed of and the corresponding unaudited book value of the equity interests as of 31 December 2021.
High-Wire Act Continues
The trust arrangement gives Evergrande the right to repurchase its stakes in the four projects. The group will retain the financial supervision right and the joint right to set the selling price of properties in the projects, while the trusts will be responsible for contributing the required capital for development and construction.
China’s second-largest developer by contracted sales, Evergrande has played for time and pleaded for patience from bondholders after setting up a “risk management committee” last December consisting of officials from the Guangdong provincial government and mainland state-owned enterprises.
The urgency of Evergrande’s situation came into full view in late January, when the defaulting developer confirmed that it had lost control of a 2.2 million square foot (204,387 square metre) residential project in Hong Kong’s western New Territories.
Evergrande’s admission that receivers had been appointed for the project in Yuen Long followed a report in the Financial Times naming US fund manager Oaktree Capital as the creditor acting to repossess the planned development designed around a Versailles-like mansion.
In the weeks since, Evergrande has vowed to restart construction and sales at its projects and sent out signals to bondholders that no fire sale of properties is taking place.