Market Puzzled By Evergrande’s $877M Share Buyback Scheme

A recent US$877 million share buy-back by real estate developer Guangzhou Evergrande has market observers puzzled regarding the Hong Kong-listed firm’s financial strategy.

The shares were purchased by the developer over a two week period this month, and amount to 6.33 percent of the company’s total stock. This move follows soon after an unexpected RMB 2.3 billion (US$378 million) special dividend that the company paid to shareholders in November.

In January, the company, which is owned by billionaire Hui Ka Yan and is one of China’s five largest developers, conducted a controversial renegotiation of some of its outstanding bonds which appeared aimed at making it easier for the company to take on further debt.

According to a statement from Evergrande, its net borrowing to equity ratio has dropped from 96 per cent to 58 per cent, some analysts, however, estimate this ratio to be closer to 110 per cent after taking out all the extraordinary adjustments. The industry average is 55 per cent.

At the time that Evergrande issued its special dividend in November, it had RMB 32.9 billion in cash available, but also had a RMB 28 billion debt obligation coming due in June this year.

In January this year, shortly after Evergrande’s Hui, who owns 65 percent of the company and took in nearly RMB 1.5 billion through the special dividend, announced a new bottled water business, and the firm has also been linked to plans for joint venture hospitals in China with Harvard University.

The tycoon has also spent extensively to fund his successful Guangzhou Evergrande football club which one the Asian AFC Champions League title under super-coach Marcello Lippi’s guidance in 2013.