Evergrande Takes Another Step Toward Shenzhen Listing

(Shenzhen) – China Evergrande Group, the country’s biggest home builder by sales, said it raised 39.5 billion yuan ($5.8 billion) from the sale of shares in its main subsidiary, as part of preparations to shift most of its real estate assets into a company listed in Shenzhen.

Evergrande, which is currently listed in Hong Kong, offered around 13% of Hengda Real Estate, its core property business, to 13 investors. They included Shum Yip Group Ltd., a real estate company owned by the Shenzhen State-owned Assets Supervision and Administration Commission, which paid 5.5 billion yuan for a 2.05% stake.

The deal means that Evergrande has now sold 26.12% of Hengda, raising a total of 70 billion yuan from 21 investors, according to a statement filed to the city’s stock exchange on Friday. It raised 30 billion yuan in January from eight investors including a subsidiary of the state-owned financial services conglomerate Citic Group. Kailong Real Estate, another subsidiary of Evergrande, holds the remaining 73.88% of Hengda.

Evergrande, which is controlled by billionaire Xu Jiayin, announced back in October that it intended to move its mainland property assets into a company listed on the Shenzhen Stock Exchange via a reverse takeover of Shenzhen Real Estate (SRE).

The process will involve SRE buying Hengda Real Estate and then Kailong purchasing a controlling stake in the listed company. The move will give Evergrande a presence in China’s stock market and make it easier for the developer to raise money. It will also allow the company to take advantage of the higher valuations property developers command on the mainland compared with Hong Kong. Evergrande plans to keep its listing in Hong Kong.

Based on the two rounds of fundraising announced by Evergrande, Hengda is valued at about 268 billion yuan. China Vanke Co., the country’s the largest home builder, has a combined market capitalization in Shenzhen and Hong Kong of about 228.5 billion yuan.

Evergrande’s Hong Kong-listed shares have risen sharply this year, driven partly by a share buy-back program that saw the company spend HK$ 6.29 billion (US$807.2 million) from March 29 to April 26. The shares jumped by 22% on May 29 to a record high of HK$15.2, and surged 68% for the whole of May.

Some analysts said the spike was a result of efforts by the company’s chairman to ward off short sellers. Others have said Xu is trying to maintain a high valuation for Hengda and use it as negotiating tool with China’s regulators to push forward the back-door listing plan.

Contact reporter Leng Cheng (chengleng@caixin.com)