Bear Market Forces Real Estate Titan to Put Backdoor Listing on Hold
China’s largest property developer by market capitalization said it still plans to list a core unit on the Chinese mainland, but added that the move is not viable at the moment given the bear market.
Hong Kong-listed China Evergrande Group announced in late 2016 it would carry out a so-called backdoor listing on the mainland, where valuations are usually higher than in Hong Kong, by injecting almost all of the property assets held by its unit Hengda Real Estate Group Co. Ltd. into the Shenzhen-listed Shenzhen Special Economic Zone Real Estate & Properties Group Co. Ltd.
Backdoor listings are carried out through the purchase of shell companies — public firms that do little real business but remain listed in order to be purchased by firms that wish to go public but are unable or unwilling to go through the usual channels.
There “have been no issues” with Chinese regulators regarding the planned listing, but the volatile A-share market is now hindering the plan, Evergrande CEO Xia Haijun said during a Tuesday earnings conference in Hong Kong. He didn’t say when the plan might move forward.
Mainland bourses, which entered bear territory in June, have been significantly dented by the China-U.S. trade tensions, which have grown far more serious than many expected, along with rising corporate bond defaults, weaker-than-expected economic growth and the swift weakening of the yuan against U.S. dollar, analysts said.
The Shanghai Composite Index has so far shed over 16% this year, while Shenzhen has lost nearly 22%. As of Tuesday, 209 Chinese real estate stocks tracked by Bloomberg News saw their shares decline by 16.7% on average from the beginning of the year. Major property developers China Vanke Co. Ltd. and Country Garden Holdings Co. Ltd. are down 10% and 15.6% respectively, while Evergrande bucked the trend with an increase of 8.2%.
Hengda has conducted three major rounds of fundraising worth a total of over 130 billion yuan ($19.1 billion) since late 2016. Its last round in November valued the company at over 425 billion yuan, which surpassed its Hong Kong-listed competitor Vanke, which had a market cap of 262.8 billion yuan on Tuesday.
Xia said Hengda is not now looking for new investors.
Contact reporter Jason Tan (firstname.lastname@example.org)
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