Country Garden snagged by risky ties that bind

Country Garden Services Holdings

28/07/2022 07:52

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Yawen Chen
    HONG KONG, July 28 (Reuters Breakingviews) - Chinese
property managers are up against a tough challenge: how to
insulate themselves, at least partly, from the crisis engulfing
real estate developers. Country Garden  2007.HK , the country’s
biggest homebuilder by sales, is a case in point. 
    The company on Wednesday unveiled a plan to raise $360
million by selling stock equivalent to nearly 4% of its enlarged
equity base to help pay down offshore debt. The announcement
 urn:newsml:reuters.com:*:nL1N2Z8029 sent its shares falling, a reflection of the 13%
discounted offer price. It also, however, triggered a 22%, or $2
billion, loss in market value for Country Garden Services
 6098.HK , its affiliate that provides security, landscaping and
maintenance. 
    It suggests growing concern about the unit’s independence
alongside the stress signalled by Country Garden’s private
placement. The scandal at China Evergrande  3333.HK  also will
be making the industry’s investors even more skittish
 urn:newsml:reuters.com:*:nL4N2Z60IY. The embattled developer said last Friday that it
had used $2 billion of deposits from Evergrande Property
Services  6666.HK  to guarantee loans that saddled the unit with
hidden debt and wiped out all its cash by last June when banks
seized it.
    Unlike with Evergrande, however, Country Garden has no
direct ownership of the services company. What’s more, Country
Garden accounts for less than half of the services unit’s
managed properties measured by floor area last year, down from
72% in 2020.
    The structure is nevertheless worrisome. Yang Huiyan, the
daughter of Country Garden’s founder and Chairman Yeung Kwok
Keung, controls both entities. She has a 60% holding in the
group and more than 40% in the property manager, according to
the latest filings over the past seven months. She is also
Country Garden’s co-chairman and leads the board of the services
business.
    There are few places to hide right now as China’s economy
cools and its real estate market suffers. Property services
companies, many of which have gone public over the past two
years, are under pressure to live up to expectations they would
weather the property slowdown better with the government focused
on increasing demand for rentals. One way for Country Garden to
help itself is by cleaning up its corporate governance.
    Follow @ywchen1 https://twitter.com/ywchen1 on Twitter
    
    CONTEXT NEWS
    Chinese property developer Country Garden said on July 27 it
was planning to raise HK$2.8 billion ($360 million) by selling
870 million shares, or about 3.6% of its enlarged share capital,
according to a filing to the Hong Kong Stock Exchange.
    The issue price, at HK$3.25 per share, represents a 13%
discount to the previous day’s close. The proceeds will be used
to refinance existing offshore debt, for general working capital
and future development purposes, the company said.
    Country Garden’s shares fell 15% on July 27 to HK$3.16,
while those of Country Garden Services, its property management
unit, fell 22%.
          
   

 (Editing by Jeffrey Goldfarb and Katrina Hamlin)
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