Stocks and bonds of Country Garden Holdings Co., the Chinese real estate developer controlled by China’s second-richest woman Yang Huiyan, rallied after the company said it’s selling a stake to Ping An Insurance Group Co.
The company’s 2023 notes surged a record 6.1 cents on the dollar to 103.3 cents as of 10:00 a.m. in Hong Kong. Shares jumped 3.8 percent to a 12-week high of HK$3.25. The builder will sell 2.24 billion new shares to the life insurance unit of China’s second-biggest insurer at HK$2.816 each, according to a Hong Kong stock exchange filing Wednesday.
Investors have grown increasingly wary of China’s family-controlled firms after a string of key executive exits led to noteholder losses at companies including Kaisa Group Holdings Ltd. Ping An’s stake purchase will make it the second-largest shareholder in Country Garden and dilute Vice Chairman Yang’s holding to 53.6 percent from 59.5 percent.
“As many offshore investors are worried about the Chinese property sector after the Kaisa saga, bringing in Ping An as a strategic investor could help to restore some confidence back to the sector,” said Yin Chin Cheong, a credit analyst at CreditSights Inc. “Any equity issuance by a company is credit positive to its creditors because the move would lower the leverage and gearing of the company.”
Country Garden, which builds villas and townhouses with more than 200 projects across China, will cut its net debt to 49 percent of equity from 54 percent, according to BNP Paribas SA. The nation’s third-biggest developer by area sold is aiming for lower financing costs and a higher debt rating, chief financial officer Wu Jianbin said in January.
“We believe having Ping An Life as the second-largest shareholder will help to reduce Country Garden’s funding costs,” Christina Chiow, a Singapore-based analyst at Barclays Plc, wrote in a note. “It also shows that Country Garden is willing to access different funding channels other than debt.”