Hopson Development Plans to Buy Stake in Evergrande’s Property Management Unit

Hong Kong-listed real estate firm Hopson Development Holdings Ltd. plans to acquire an unspecified stake in troubled China Evergrande Group’s property management subsidiary in a deal that could value the company at more than HK$40 billion ($5.1 billion), a source familiar with the matter told Caixin.

With more than $300 billion in liabilities, Evergrande, once a top-selling property developer in China, has been seeking buyers for some of its assets as it grapples with a debt crisis which some market observers believe will affect the country’s financial system and real estate industry. 

Trading in the shares of both Evergrande and its property management subsidiary, Evergrande Property Services Group Ltd., were suspended on Monday in Hong Kong, with the subsidiary saying in a stock filing that the halt was due to a pending announcement regarding “an inside information and a possible general offer for the shares of the company.” 

In a separate stock filing on Monday, Hopson also announced that its shares were suspended from being traded, pending an announcement related to an acquisition by Hopson of an unnamed Hong Kong-listed firm and a possible mandatory offer.

According to Hong Kong listing rules, an issuer must demonstrate “exceptional circumstances” when requesting a trading suspension and has to publish a public update as soon as possible. Evergrande Property Services and Hopson did not immediately respond to a request for comment.

China is observing a weeklong National Day holiday starting Oct. 1. On Sept. 30, the last trading day before the holiday, shares of Evergrande Property Services closed at HK$5.12, giving it a market capitalization of HK$55.4 billion, representing a drop of 73.2% from a record high of HK$206.5 billion in February. The sharp decrease in market value means that Evergrande Property Services is unlikely to sell its shares to Hopson at a premium price, according to the source.

A investor with a focus on listed property management firms told Caixin that the share deal would come with a price-to-earnings ratio of 15 based on Evergrande Property Services’ 2020 profit, compared with an industry average of between 11 and 14.

Established in 1997, Evergrande Property Services mainly manages properties developed by Evergrande’s real estate development unit. The property services business went public in Hong Kong in December last year, with the offering valuing the unit at about HK$95 billion at the time.

Under Hong Kong listing rules, the controlling shareholder of a listed company that has been listed for more than six months but less than a year in the city must not lose its control over the firm after selling some of its shares. But there may be an exception if a special situation occurs. As of the end of last year, Evergrande held a stake of nearly 60% in Evergrande Property Services, according to stock filings.

In the first half of 2021, Evergrande Property Services reported a net profit of 1.9 billion yuan on revenue of 7.9 billion yuan, according to its interim earnings report. As of the end of June, the area of properties under its management totaled 450 million square meters, about 70% of which were those developed by Evergrande or its joint ventures, the financial report said.

Evergrande Property Services will likely lose some potential customers if Evergrande fails to complete its property projects as scheduled or sells some projects to others amid the cash crunch, analysts said.

In November last year, Hopson, which is majority owned by property billionaire Chu Mang Yee who cofounded the business in 1992, was among a group of cornerstone investors who agreed to subscribe for HK$7.2 billion of stock in Evergrande Property Services’ IPO.

Last week, a wholly owned subsidiary of Evergrande agreed to sell a 19.93% stake worth 10 billion yuan in Northeast China’s Shengjing Bank Co. Ltd. to a Chinese state-owned company. Evergrande said at the time that all net proceeds from the deal have been demanded by Shengjing Bank to repay liabilities owned by the developer to the bank.

Hong Kong-listed Evergrande electric vehicle unit, China Evergrande New Energy Vehicle Group Ltd., is also facing financial difficulties. Last month, it warned of a “serious shortage of funds” and scrapped plans to list in Shanghai, raising concerns that it may never reach its goal of mass-producing its vehicles.

Contact reporter Ding Yi (yiding@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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