Evergrande gets Hong Kong exchange nod to spin off management unit

[HONG KONG] China Evergrande Group won approval from the Hong Kong Stock Exchange to spin off its property management unit, it said in an exchange filing on Friday, paving the way for the company to raise much needed capital.

Evergrande could seek to raise US$1 billion to US$2 billion from the offering, depending on market conditions, people familiar with the matter said, who asked not to be identified because the information is private. The developer said it will shortly submit a formal application for listing the property management unit.

The unit, recently valued at US$11 billion in a stake sale to strategic investors, could help replenish the indebted developer's finances. This comes at a time strategic investors have the right to demand the company pay them US$19 billion in January if it can't complete a targeted listing in China. The stock plunged for a second-day Friday after Bloomberg News yesterday reported the developer had sought government help to avoid a cash crunch.

Chinese property developers have been seizing on a market rally to list their service arms and raise money to pare debt. Hong Kong-listed Evergrande needs the exchange's approval for the restructuring.

Unlike real estate assets that face government curbs and cyclical downturns, the property management units offer a stable business model with recurring fee revenue and low leverage. Investor demand has also prompted some of these companies to demand valuations loftier than Kweichow Moutai Co, the spirits maker that's one of China's most loved stocks.

Evergrande raised HK$23.5 billion (S$4.17 billion) by selling a 28.1 per cent stake in its property management arm to investors including Tencent Holdings in August. Companies linked to Citic Capital Holdings, the wife of billionaire mogul Joseph Lau and the family investment arm of New World Development billionaire Henry Cheng were among the cornerstone investors.

Other investors include Yunfeng Capital, the fund backed by Chinese e-commerce billionaire Jack Ma, and Sequoia Capital, people familiar said.

The proceeds from the pre-IPO fundraising may allow Evergrande to reduce its net debt to equity, a key measure of leverage, to 153 per cent from 159 per cent at the end of last year, according to Bloomberg Intelligence.

BLOOMBERG