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The Real 21st Century Property Baron Doesn't Live in Mar-a-Lago

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Shuli Ren
·4 min read
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(Bloomberg Opinion) -- In a bond world that doesn't pay interest, China’s real-estate developers are a real standout. They have survived the European debt crisis, Beijing’s draconian deleveraging campaigns and the Covid-19 lockdown. Each time the market pulls back, bankers tell their wealthy clients to buy, for fear of missing out.

At the core of this lucrative sector sits a property mogul who has demonstrated uncanny, gravity-defying survival skills. Over the years, short sellers have set him in their crosshairs, regulators have rebuked his shareholding structure, and his company’s debt pile has crossed Beijing’s red line. But Hui Ka Yan, the billionaire chairman of China Evergrande Group, is still around.

Just this week, Hui was able to rope in Norway’s sovereign wealth fund for its share sale. While the placement was downsized and offered at a 15% discount, you’ve got to marvel at the A-listers Hui attracted given recent news reports that Evergrande had warned of an impending credit crunch. Who would want to own the stock of a company that struggles to repay its debt? Hui is the new 21st-century property baron.

Or consider that in a matter of days, Hui managed to convince his investors to roll over about two-thirds of the 130 billion yuan ($19.4 billion) of hybrid securities due in January, at a time when the world was losing faith in his empire. Suning Appliance Group Co., one of the largest investors with 20 billion yuan at stake, made clear it would demand repayment to cover its own mounting debt pile. Suning ended up signing the new deal.

In the next few months, Hui will look to raise capital by listing his property-management and electric vehicle subsidiaries. Evergrande said it is hoping to raise at least 34 billion yuan in the mainland by selling a stake in its EV unit at no less than HK$25 ($3.23) per share, or about 10% above the current market price. As it is, the Hong Kong-listed shares of China Evergrande New Energy Vehicle Group Ltd. are richly valued thanks to their Tesla-like hype. Eighteen shareholders, including the parent, own 94.8% of the stock, the Securities and Futures Commission complained in August.

A warning from the regulator isn't good for public relations, but Hui can weather this storm. He can dissolve a debt crisis with the help of powerful friends. He can reach out to wide social circles, from reluctant suppliers to Hong Kong tycoons, who will put out public filings showcasing their support at the darkest hours. When he has to peel off assets, he makes sure they are sold at a steep premium.

But Hui makes you pay for that scintillating coupon — at least psychologically. As the developer walked toward the brink in recent weeks, investors laid awake at night, crunching Evergrande’s cash flow math in their heads.

As of June, the company sat on 141 billion yuan in cash but had 396 billion yuan, or 47% of its borrowings, due within a year. With $27 billion in offshore bonds, the company is Asia’s largest dollar junk-debt issuer. Its dollar bonds due 2025 are yielding around 16%.

During the October Golden Week holiday, investors watched nervously as Evergrande offered its deepest discount in history to boost apartment sales. The developer could generate 380 billion yuan in cash from contracted sales in the second half of the year, estimates Standard Chartered Plc. The good news is that, as of Oct. 8, Evergrande had already achieved 91.1% of its full-year target. The bad news? Hui has many bills to pay.

Of Evergrande’s short-term borrowings, 127 billion yuan, or about one-third of the total, come from capital markets and trust companies. The rest originate from construction loans, which could be rolled over under normal conditions. If Hui can convince his bankers that building activity is proceeding as usual, you just might get your money back.

With a concentrated shareholding structure and frequent backroom sales to family and friends, it’s worth asking if Evergrande can find genuine outside investors at all. But if Hui can pull off these acrobatics, those thirsty for yield will come. After all, many have placed their faith in blank-check companies this year, believing those who run them can bring undervalued businesses to public markets. So why not Hui, who has a long track record of persuasive salesmanship and survival? Unlike Donald Trump, whose companies declared bankruptcy many times, Evergrande’s guru seems to get the real art of the deal.

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

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

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