Evergrande’s ally Chinese Estates plans to exit Hong Kong listing after shares fall

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Hong Kong developer had seen his actions plunge as much as 44% this year at their lowest level in nearly two decades as Evergrande was on the verge of collapse. Chinese Estates is Evergrande’s second largest shareholder after founder and chairman Xu Jiayin.
“Directors are cautious and concerned about the recent development of China Evergrande Group, including certain disclosures made by China Evergrande Group on its liquidity,” Chinese Estates said in a document filed on the stock exchange Wednesday evening.

He offered to pay minority shareholders HK $ 1.91 billion ($ 245 million) for their 25% stake and privatize the company. The offer represented a premium of around 83% over the stock’s closing price on September 28, the last full day before it was suspended from trading.

Chinese Estates Holdings, controlled by Hong Kong billionaire Joseph Lau and his wife Chan Hoi-wan, is a long-standing ally of Evergrande. It has often offered financial support to the Chinese developer by subscribing to many of its bond or stock sales since 2009 when Evergrande was listed in Hong Kong. She has also worked with Evergrande on real estate projects in mainland China.
At the end of last year, holdings of Evergrande bonds and stocks represented more than a third of Chinese Estates’ total assets, according to the company’s annual report. As Evergrande shares collapsed amid an escalating debt crisis, Chinese Estates Holdings suffered huge losses on its investment.
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On September 23, Chinese Estates Holdings announced that it had sold $ 32 million of Evergrande shares in the past three weeks. He also plans to discharge his remaining stake. The company expects its total loss from the divestitures to be HK $ 10.4 billion ($ 1.3 billion).

Privatization can give a company more flexibility to think long term and achieve its strategic goals, rather than being swayed by short term market expectations. Shares of Chinese Estates Holdings climbed 32% Thursday in Hong Kong as trading resumed after the offer was announced. They had been suspended since the morning of September 29.

The Evergrande debt crisis has destabilized global investors in recent weeks, raising concerns about a potential domino effect on the wider Chinese economy and financial markets. Earlier this week, another Chinese developer Fantasia Holdings defaulted on its debt as smaller players grapple with rising bond yields, funding dries up and home buyers become more cautious.

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Stress in China’s real estate sector has increased since August 2020, when Beijing curbed excessive developer borrowing to prevent the market from overheating.

Earlier this year, the Chinese government made it clear that it would prioritize “common prosperity” in its policy goals and tame runaway housing prices, which it accused of worsening income inequality and threaten economic and social stability.

Evergrande’s liquidity crisis has worsened in recent months. The company warned investors of its cash flow crisis in September, saying it could default if it wasn’t able to raise funds quickly. In the past few weeks, he has missed at least two bond interest payments.

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