Nov 8 (Portal) – Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden (2007.HK), the country’s largest private property developer, four people familiar with the plan said.
China’s State Council, led by Premier Li Qiang, has ordered the local government of Guangdong province, where both companies are based, to help save Country Garden by Ping An, two of the sources with direct knowledge said of which have subject matter.
A spokesman for Ping An (601318.SS) said the government had not approached the company and disputed the information reported by Portal.
Ping An “was not asked by the government to take over Country Garden. We categorically deny this story. It is untrue,” the company said in a statement.
The insurer, which competes with China Life (601628.SS) for the title of the country’s largest insurance group by market value, declined to make its founder and chairman Ma Mingzhe available for an interview. Ma, who also uses the English first name Peter, did not respond to an email request from Portal for comment.
China’s State Council Information Office and Guangdong’s local government did not respond to requests for comment. Country Garden declined to comment.
Hong Kong-listed shares of Ping An extended losses after the Portal report showed they fell 5.7%, their lowest level in a year. Shares of Country Garden rose 4% in afternoon trading.
A state-organized rescue of Country Garden by Ping An would be one of the authorities’ most significant interventions yet to support the cash-starved and heavily indebted real estate sector, which accounts for a quarter of China’s economic activity and has raised fears of a broader financial crisis.
It is important to authorities that the risks posed by Country Garden’s liquidity problems do not spill over into the broader economy, three of the sources said.
While companies in China can rarely ignore a request from the central government, the three sources said Ping An had been asked to provide details of the plan and had leeway to negotiate the terms of a deal.
Talks between authorities and key Ping An leaders began in late August and are still at an early stage, two of them said.
Ping An had been asked to conduct due diligence on Country Garden, two sources also said, adding that authorities believed the insurer was a listed company answerable to shareholders be.
A fifth person with knowledge of the matter said some discussions took place in September between Ping An and the local government of Guangdong about rescuing Country Garden.
Due to the sensitivity of the matter, all sources were declined to be cited.
The talks between Ping An and authorities are being led by officials from the financial markets department of the People’s Bank of China (PBOC), the central bank that includes Country Garden, two sources said.
The National Financial Regulatory Administration (NFRA) is also involved in the discussions, they added.
Neither the PBOC nor the NFRA responded to Portal requests for comment.
Authorities want Ping An to take a stake of more than 50%, according to a person with direct knowledge and a person briefed on the plan.
Country Garden’s largest shareholder, with a stake of around 52%, is Yang Huiyan, chairman and daughter of a co-founder. Portal could not reach Yang for comment.
If Ping An were to become Country Garden’s majority shareholder, authorities would want a phased capital injection to ease the developer’s liquidity problems, according to four sources.
The real estate developer missed a deadline to pay a $15 million coupon last month and the market expects it to default on about $11 billion of its offshore bonds.
Country Garden has said it expects it will not be able to meet all of its offshore debt obligations and hopes to find a “holistic” solution to its difficulties.
Two of the sources also said that Chinese authorities are eager to use the proposed acquisition as a possible example for other financially troubled developers.
GUANGDONG SOLUTION
According to three sources, authorities are keen to see Country Garden’s liquidity problems in Guangdong resolved. According to two sources, Ping An was a natural choice since it is based in Guangdong and is one of Country Garden’s major shareholders.
According to the Hong Kong Stock Exchange, as of August 11, the insurer held a 4.99% stake in Country Garden. Portal could not determine whether Ping An currently holds shares in Country Garden.
A state-controlled takeover of one company by another is not unprecedented in China. But since Beijing announced measures in 2020 to address the industry’s very high debt levels, which led to a liquidity crisis, there has been no such crisis in the real estate sector.
Although many other Chinese real estate developers, including giant China Evergrande (3333.HK), have defaulted on their debts, policy measures have largely focused on lowering mortgage rates and easing rules to make it easier for people to to buy houses.
But in a sign that government authorities are ready to play a bigger role, China Vankes (000002.SZ), largest shareholder, state-owned Shenzhen Metro, said on Monday it would provide 10 billion yuan worth of “market instruments” (1 .4 billion) to support the second largest developer in the country.
Country Garden had total liabilities of 1.4 trillion yuan ($190 billion) at the end of June. It has more than 3,000 projects in development across the country.
Ping An has already been hired by the authorities to rescue a struggling company.
The company participated in government aid to Peking University’s founding group in 2021 and 2022. Its main unit, Ping An Life, was part of a consortium involved in restructuring the group’s debt, and then the unit took a 67% stake in the reorganized company.
($1 = 7.2846 Chinese Yuan)
Reporting by Portal staff; Edited by Anne Marie Roantree, Antoni Slodkowski, Don Durfee and Edwina Gibbs
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