Beijing engineering huge property rescue

Beijing engineering huge property rescue

Insurer Ping An in government-orchestrated talks to take over heavily indebted developer Country Garden

Residential buildings being developed by Country Garden are seen in Tianjin, China in August. The company has an estimated $186 billion in debts. (Photo: Reuters)
Residential buildings being developed by Country Garden are seen in Tianjin, China in August. The company has an estimated $186 billion in debts. (Photo: Reuters)

HONG KONG: Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden, the country’s biggest private property developer, four people familiar with the plan say.

The State Council, which is headed by Premier Li Qiang, has instructed the local government of Guangdong province, where both companies are based, to help arrange a rescue of Country Garden by Ping An, said two of the sources who have direct knowledge of the matter.

Chinese property stocks rallied and Ping An shares slumped to a one-year low on Wednesday in response to the news.

Ping An’s Hong Kong-listed shares tumbled 5.4%, their sharpest daily fall in more than a year, wiping out almost US$2.1 billion in market capitalisation. Turnover was the highest in almost a year.

Thailand’s Charoen Pokphand Group, a major investor in China, is the largest single shareholder in Ping An, holding a 6.12% stake as of June 30 this year. The Shenzhen government owns 5.29%.

Country Garden shares rose to a one-month high and closed up more than 12%. Its dollar debts also rallied.

A spokesperson for Ping An said the company had not been approached by the government and denied the information first reported by Reuters.

However, markets took it as a positive signal for the debt-laden property sector, which has been weighing heavily on the world’s second-largest economy and stirring fears of broader financial system contagion.

The developers China Evergrande and Sunac China Holdings jumped roughly 30% each. An index of Hong Kong-listed mainland developers rose 2.7%. (Story continues below)

Thailand’s Charoen Pokphand Group is the largest single shareholder in Ping An Insurance Group, holding a 6.12% stake as of June 30 this year. (Photo: Reuters)

'Confidence boost'

“Such a move should mitigate or control the risks in the market,” said Lu Wenxi, analyst at property agency Centaline.

“This move is a big boost to market confidence, because now the whole real estate market, especially some major real estate enterprises are under pretty big pressure, and their bankruptcy risks triggering a chain reaction.”

Ping An said in a statement that the company has “not been asked by (the) government to take over Country Garden. We categorically deny this story. It is untrue".

The insurer, which vies with China Life for the title of the country’s biggest insurance group by market value, declined to make its founder and chairman, Ma Mingzhe, available for an interview.

The State Council Information Office and the Guangdong local government did not respond to requests for comment. Country Garden declined to comment.

A state-engineered rescue of Country Garden by Ping An would be one of the most significant interventions to date by authorities to support the cash-squeezed and highly indebted property sector, which accounts for one-quarter of China’s economic activity and has sparked fears of a broader financial crisis.

Authorities are keen that any risks posed by Country Garden’s liquidity problems should not spill over to the wider economy, said three of the sources.

While in China companies can rarely ignore a request from the central government, the three sources said Ping An has been asked to come up with details of the plan and will have leeway to negotiate terms of any deal.

Talks between authorities and core Ping An leaders began in late August and are still at an early stage, said two of them.

Ping An has been asked to conduct due diligence on Country Garden, two sources also said, adding that authorities understood the insurer was a listed company answerable to shareholders.

A fifth person with knowledge of the matter said some talks between Ping An and the Guangdong local government about a rescue of Country Garden took place in September.

All sources declined to be identified due to the sensitivity of the matter.

Central bank involved

Discussions between Ping An and authorities are being led by officials in the financial markets department of the People’s Bank of China, and include Country Garden, said two sources.

The National Financial Regulatory Administration (NFRA) is also involved in the talks, they added.

Neither the PBOC nor the NFRA responded to Reuters requests for comment.

Authorities want Ping An to take a stake of more than 50%, according to one person with direct knowledge and one person briefed on the plan.

Country Garden’s largest shareholder with a stake of about 52% is Yang Huiyan, the chairperson and daughter of a co-founder. Reuters was not able to reach Yang for comment.

If Ping An were to become Country Garden’s controlling shareholder, authorities would like it to inject capital in stages to ease the developer’s liquidity problems, according to four sources.

The property developer last month missed a deadline to pay a $15-million coupon and the market has deemed it to be in default on its offshore bonds which total some $11 billion.

Country Garden has said it expects to be unable to meet all of its offshore debt obligations and hopes to seek a “holistic” solution to its difficulties.

Chinese authorities are eager to make the proposed takeover a possible template for other financially troubled developers, two of the sources also said.

Ping An as of Aug 11 had a 4.99% stake in Country Garden, according to Hong Kong stock exchange data. Reuters could not determine if Ping An currently holds Country Garden shares.

A state-engineered takeover of one company by another is not without precedent in China. But there has not been one in the property sector since Beijing flagged measures in 2020 to tackle the industry’s very high debt levels, triggering a liquidity crunch.

Although many other Chinese property developers, including giant China Evergrande, have defaulted on their debt, policy steps have mostly concentrated on lowering mortgage rates and relaxing rules so that it is easier for people to buy homes.

But in a sign that governmental authorities are willing to play a bigger role, China Vanke’s top shareholder, state-owned Shenzhen Metro on Monday said it had prepared 10 billion yuan ($1.4 billion) worth of “market tools” to support the country’s No. 2 developer.

Country Garden had total liabilities of 1.4 trillion yuan ($190 billion) at the end of June. It has more than 3,000 projects under development nationwide.

Ping An has been tapped by authorities as a rescuer for an ailing company before.

It participated in state-guided aid for Peking University Founder Group in 2021 and 2022. Its main unit, Ping An Life, was part of a consortium that was involved in restructuring the group’s debt and then the unit took 67% ownership of the reorganised company.

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