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Evergrande Shares Worth $1 Billion Appear in Clearing System

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(Bloomberg) -- China Evergrande Group shares worth nearly $1 billion appeared in Hong Kong’s Central Clearing and Settlement System on Friday, a sign that founder Hui Ka Yan may be pledging part of his stake as collateral for loans.

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The 2.8-billion share position was reported to CCASS by Haitong International Securities Co., according to the Hong Kong stock exchange website.

In October, a 500-million share increase in Haitong’s CCASS holdings coincided with a pledge by Hui of the same amount. The billionaire property tycoon and his wife own more than 76% of Evergrande’s outstanding shares, which have lost more than 80% of their value this year.

Hui and other Chinese real estate moguls have been tapping their personal wealth as they try to stave off defaults amid an industrywide liquidity squeeze. The Evergrande founder has injected more than $1 billion into his company since July, China Business News reported last week. That’s about an eighth of his estimated $7.9 billion net worth, according to the Bloomberg Billionaires Index.

Even if lenders agree to accept Evergrande shares as collateral, they’re likely to demand a significant cushion against the possibility of further declines in the stock. A typical equity-backed loan for a blue-chip company in China amounts to just 50% to 60% of the value of shares pledged. For a distressed business like Evergrande, the ratio could be much smaller.

Chinese authorities have told Hui to use his personal wealth to alleviate Evergrande’s debt crisis, people familiar with the matter said last month. Yet it’s unclear whether Hui’s fortune is big and liquid enough to make a sizable dent in Evergrande’s liabilities, which swelled to more than $300 billion as of June.

Despite several last-minute payments on dollar debt in recent weeks, Evergrande’s bonds are trading at deep discounts to par value as investors brace for what could be one of China’s largest-ever debt restructurings. The company’s notes due March 2022 were trading near 32 cents on the dollar on Monday, while the shares slipped 1.8% to HK$2.73.

Evergrande didn’t immediately respond to a request for comment on the CCASS stake, which was first reported by Hong Kong Economic Times.

(Adds stock chart, context from third paragraph.)

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