Evergrande's $1.7 bln Hong Kong headquarters sale flops as buyer withdraws -sources

Chinese Estates Holdings

15/10/2021 10:53

(Adds Evergrande bond performance, paragraph 6)
    By Julie Zhu, Kane Wu and Clare Jim
    HONG KONG, Oct 15 (Reuters) - Chinese state-owned Yuexiu
Property  0123.HK  has pulled out of a proposed $1.7 billion
deal to buy China Evergrande Group's  3333.HK  Hong Kong
headquarters building over worries about the developer's dire
financial situation, two sources said.
    The collapse of the talks for the landmark building's sale
is another setback for cash-strapped Evergrande which has been
scrambling to divest some assets to repay creditors knocking on
its doors. With more than $300 billion in liabilities, it has
already missed three rounds of interest payments on its
international bonds.  urn:newsml:reuters.com:*:nL1N2R804A
    Yuexiu, based in the southern city of Guangzhou, was close
to sealing a deal in August to acquire the 26-storey China
Evergrande Centre in Hong Kong's Wan Chai district that serves
as Evergrande's local headquarters, said the sources. 
    The deal, however, faltered after Yuexiu's board opposed the
move over worries that Evergrande's unresolved indebtedness 
would create potential complications in completing the
transaction smoothly, they said.
    Once China's top-selling developer, Shenzhen-based
Evergrande has in recent months sought to raise funds by
offloading assets - from properties to stakes in subsidiaries -
both in mainland China and in Hong Kong.
    Evergrande, which saw its 8.75% June 2025 bond fall more
than 6% to 18.625 cents on Friday, did not respond to a request
for comment. Nor did Yuexiu. 
    The people declined to be identified due to confidentiality
constraints.
    Evergrande bought the harbourside building, which is located
in Hong Kong's commercial and night life district and covers an
area of 345,000 square feet, from local peer Chinese Estates
Holdings  0127.HK  for HK$12.5 billion ($1.61 billion) in 2015.
    That deal set a record for a single transaction of a
commercial building in the Asian financial hub with the highest
price per square foot at the time. It also made the property
Evergrande's single largest asset in the city.
    Evergrande has financed the bulk of the transaction with
securitised products worth more than HK$10 billion, said one of
the sources, which means it would only recoup limited cash from
the sale of the building.
    
    EVERGRANDE PROSPECTS 
    The board of Yuexiu, which focuses on property developments
in China's Greater Bay Area and has a presence in Hong Kong,
became concerned about the deal's certainty at a time when
Evergrande's future is uncertain, said one of the sources.
    Yuexiu also received guidance from the municipal government
of the southern city of Guangzhou to put the purchase on hold at
the end of August, said the person. 
    A separate source familiar with the matter said the deal was
halted in late August because the Guangzhou government wanted to
review the overall financial situation of Evergrande first to
better understand the use of proceeds from its asset disposals.
    The Guangzhou government did not respond to a request for
comment.
    Separately, Evergrande is in final talks to sell a 51% stake
in its property management arm Evergrande Property Services
 6666.HK  to domestic peer Hopson Development  0754.HK , in a
deal that could fetch about HK$20 billion, said two of the
sources. 
    One of them said both parties are finalising details
including financing for the buyer.
    When asked about the deal, Hopson said any comments will
have to wait till an announcement is made. 
    The Hopson deal would be Evergrande's largest asset sale yet
if it goes ahead. The struggling developer's other business
interests include a bottling water company and an electric
vehicle maker.  
    It is also close to selling its Guangzhou FC Soccer stadium
and surrounding residential projects to Guangzhou City
Construction Investment Group, Reuters reported last month.
 urn:newsml:reuters.com:*:nL1N2QU37K
  ($1 = 7.7784 Hong Kong dollars)

 (Reporting by Julie Zhu, Kane Wu and Clare Jim; Editing by
Sumeet Chatterjee, Muralikumar Anantharaman and Jason Neely)
 ((julie.zhu1@thomsonreuters.com; +852 2843 6519; Reuters
Messaging: julie.zhu1.thomsonreuters.com@reuters.net))