Photographer: Justin Chin/Bloomberg

China Billionaires May Be Closer to Taking Property Arms Private

  • Wang Jianlin could announce buyout after Wanda shares halted
  • Evergrande stake in Calxon could be prelude to de-listing

Two of China’s largest developers took steps that moved them closer to potentially switching their stock market listings from Hong Kong to China, where their top executives have said they can get higher valuations.

On Monday, Dalian Wanda Commercial Properties Co., controlled by billionaire Wang Jianlin, requested a suspension of its shares pending an announcement pertaining to an exchange code on mergers and takeovers, as Wang pursues a buyout plan that will help him re-list the shares on the mainland.

Meanwhile, Evergrande Real Estate Group Ltd. shares surged by the most in more than a month in Hong Kong after it said on Sunday it had agreed to pay 3.6 billion yuan ($555 million) to acquire a stake in Shenzhen-listed China Calxon Group Co., an acquisition that could signal the company’s chairman Hui Ka Yan is also considering a similar move.

While both companies have suggested they are motivated by a desire to seek higher valuations on the mainland, the two deals face very different chances of success, analysts say. JPMorgan Chase & Co.’s Cusson Leung noted that while Evergrande said the deal will help it get access to the A-share market, privatizing and re-listing in China “is not that feasible.”

Many Obstacles

As Evergrande is a “red chip” company incorporated offshore, it faces far more obstacles than Wanda Commercial, which is incorporated in China and has an “H-share” listing, Leung said in a note on Monday. He echoed sentiments expressed by Citigroup Inc. property analyst Oscar Choi, who wrote in a note before the Calxon deal was announced that for Evergrande, de-listing in Hong Kong and re-listing faces considerable hurdles that could make the process too costly and lengthy to make sense.

Unwinding Evergrande’s offshore structure and transferring assets to China in order to inject them into Calxon’s A-share listing could trigger huge tax liabilities for Evergrande, Choi wrote. Hurdles include transferring ownership of Evergrande’s stakes in other Hong Kong-listed companies. Evergrande owns 75 percent of Evergrande Health Industry Group Ltd. and majority stake of Internet service provider HengTen Networks Group.

Wang, on the other hand, is so confident he’ll be able to take Wanda commercial private and re-list it on the mainland that he has offered investors a guaranteed return if they help him buy the 14.41 percent of the company’s H-shares he and other Chinese domestic investors don’t already own.

Guaranteed Return

If the developer has not gone public on a mainland exchange by either Aug. 31, 2018, or two years from the Hong Kong de-listing, Wanda Group will buy back the shares at a level guaranteeing a 12 percent annual return for domestic investors and 10 percent for those overseas. To back its pitch, Wanda says valuations for some property companies listed on the mainland are more than triple those of comparable stocks traded in Hong Kong.

“Evergrande might be considering to privatise the H shares and list A shares, through Calxon,” Zhou Chuanyi, a credit analyst at Lucror Analytics wrote in the note on Monday. “We view the acquisition as credit negative,” because the company is “burning cash” and a possible re-listing will lead to poor transparency, the analyst wrote.

Evergrande has become the most indebted of 198 listed Chinese real estate firms, Bloomberg-compiled data show. There is a 6.2 percent probability it will miss payments in the next 12 months, up from 1 percent a year ago, according to the Bloomberg Default Risk model that tracks metrics including share performance, liabilities and cash flow. Jimmy Fong, investor relations official at Evergrande, said on Thursday a property market pickup had improved liquidity and it could meet near-term obligations.

Before it's here, it's on the Bloomberg Terminal.