Evergrande Jumps After $555 Million Deal to Buy Calxon Stake

  • Lucror's Zhou says move might signal mainland re-listing
  • Evergrande says land reserves to be enhanced with acquistion

Evergrande Real Estate Group Ltd. shares surged in Hong Kong after it agreed to pay 3.6 billion yuan ($555 million) to acquire a stake in China Calxon Group Co.

The Chinese real estate developer, which has embarked on a buying spree since last year, closed 3.7 percent higher at HK$5.90 on Monday in Hong Kong, after earlier jumping as much as 7.7 percent, the most since October 2. That compared with a 0.8 percent gain in the benchmark Hang Seng Index.

The acquisition may signal that Evergrande is considering de-listing in Hong Kong and re-listing on the mainland, Zhou Chuanyi, a credit analyst at Lucror Analytics, wrote in a note to clients. 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.”

Evergrande said Sunday in a stock exchange announcement that it will, through a subsidiary, buy a stake in Shenzhen-listed China Calxon Group. The developer said its land reserves will be enhanced through the acquisition and the ratio of its projects in tier-one and tier-two cities will be enlarged.

“Evergrande might be considering to privatise the H shares and list A shares, through Calxon,” Zhou 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 may consider going private and list in China given its chairman’s view that the developer’s valuation in Hong Kong is distorted, Citigroup Inc. said in an April 18 report.

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.

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