Real Estate

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Asian investors often say that Evergrande is too big to fail. The real estate group may be putting that notion to the test, and in the process could unleash a flood of deals back home.

On Tuesday, China's largest developer by assets announced a plan to inject some of those into a property company listed in Shenzhen. That way, Evergrande will be able to raise equity in China without having to go through the lengthy and increasingly difficult process of getting approval for a stock offering.

Home Support
Evergrande's Hong Kong-listed stock jumped after news the developer could get a mainland listing
Source: Bloomberg

For Evergrande, any avenue to increase the equity on its balance sheet is good news. Credit rating agencies already say there's a high possibility the company won't be able to pay its debts.

It's especially good news, however, for all the other Chinese firms that have recently expressed an interest in selling shares domestically and have run into a regulatory brick wall. If Evergrande succeeds, maybe they will too, opening up a whole new way to access liquidity onshore.

The result may be a wave of similar backdoor listings, which is ironic considering Chinese companies are renowned for reversing into shells in Canada, the U.S., Singapore and Hong Kong.

Knock, Knock, It's China
Chinese firms have backdoored into more than 200 listed companies in Canada, U.S., Singapore and Hong Kong over the past decade
Source: Bloomberg
* Data refers only to private Chinese companies buying publicly listed ones in the four jurisdictions.

Whether such a phenomenon does transpire rests on Evergrande getting the nod from authorities -- the same ones that have been blocking new IPOs. But if any company has a decent shot, it's Evergrande, simply because it's so leveraged, and so big. Putting a stop to this transaction could spell Evergrande's demise, and Beijing certainly wouldn't want that.

If Evergrande manages to park some of its assets in a Shenzhen-listed company, expect peers like Dalian Wanda Commercial Properties and even some internet plays such as 21Vianet to try the same. Any easier access to those higher valuations at home is just too tempting.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net